Potential home buyers have options when it comes to choosing the type of loan they seek from mortgage companies. Each type has its own unique advantages and disadvantages. Consumers should research the various options and choose the type of loan that suits their individual needs.
A fixed rate loan offers terms with a consistent interest rate for the life of the loan. The borrower pays equal monthly payments for the entire term with interest payments front-loaded. This means that over the first few years, a smaller portion of the monthly payment is applied toward the principal. Homeowners have an easy time budgeting for this type of loan but if interest rates fall, they are stuck with the higher rate.
Adjustable rate loans usually offer lower interest rates at the beginning but they fluctuate after that. The rate continually adjusts with a cap on the total amount it can change. Rates fluctuate according to an index based on what it costs the lender to borrow on credit markets. If a lender’s interest rate increases, the lender passes the increase on to the consumer.
Many consumers who are buying their first home opt to apply for a Federal Housing Administration loan. These mortgages offer an easier path to approval. Borrowers receive low down payments and lower closing costs. FHA loan amounts are typically limited.
VA loans are guaranteed for veterans, surviving spouses, and active duty personnel. Borrowers can receive competitive rates and low down payments. Like an FHA loan, loan sizes are limited.
Other options include interest only, balloon mortgages, and reverse mortgages. Potential home buyers can talk to experts at mortgage companies for more information about the various types of loans available. These professionals will review the terms and help consumers choose the loan that best fits their financial situation.