Explanation of Mortgage types and which mortgage type is right for you

At some point, choosing the right mortgage can be tough.  There are quite a number of mortgage types different from each other and it can be overwhelming!

Mortgage is very individualized – the right mortgage types for you may not be the right mortgage types for another person.  You see, choosing the right mortgage will always depend on your need and your ability to meet the monthly obligations.  Mortgage types have different monthly payments, current mortgage rates, terms, and conditions.

Although there are numerous mortgage types available, most of them fall into the following categories:

Fixed Rate – these mortgage types are traditional mortgage loans having a fixed interest rate throughout the entire life of the mortgage. Typical period to settle this type of mortgage is 10, 15, 20, or 30 years.  With mortgage types such as this, your monthly payment (principal plus interest) will not change (although escrow expenses such as insurance and property taxes may change every year).  Down payment that is required for this mortgage might be as low as 5%. So if you want to have predictable payments throughout the entire life of your loan, mortgage types such as this may be the right one for you.

Adjustable Rate – these mortgage types typically starts on lower current mortgage rates (therefore, lower monthly payments).  However, these payments and interest rates fluctuate depending on the market.  A typical adjustable rate mortgage is adjusted annually (though there are some that are adjusted more often).  Increases will be capped.  For example, your mortgage rate that started from 7.5% on the first year may increase to 10% in the second year, 12% in the third year, at which point it will be capped.  Choose mortgage types such as this to buy a house on your current income if you are confident that you can afford the rising monthly payments because your income will increase in the next few years.

Balloon Mortgage – mortgage types such as this might be for you if you think that you will be moving in 5-7 years but you are not comfortable with the terms of the adjustable rate mortgage. Balloon mortgage offer a lower interest rate than the usual 30-year mortgage, and the loan is due in 5-7 years. If you are still living in the house at the end of this term, you have to find another mortgage to be able to settle the first one.

Jumbo loans – these mortgage types are just like what their name suggests, this is larger than an average mortgage.  Most lenders will follow the Freddie Mac or Fannie Mae federal guidelines for such loans, which usually limits the amount that you can borrow (usually up to $252,700).  If you are looking for an amount that is bigger than this, then you need mortgage types such as jumbo loan

In choosing the final list of mortgage types for you, it is best to weigh things out.  Understand and analyze the particular the different mortgage types fully before you plunge into it.  There are several factors to consider such as: moving in expenses, closing fees, and of course, you have to prepare money for the down payment fees.  But if you are willing to do mortgage rates compare and a little research, you can find the mortgage type that is suitable for your needs - not the lenders