The 3 Types Of Mortgage Loans
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The Three Main Types of Mortgage Loans
Navigating the world of mortgage loans can be challenging due to the variety of options available. Here’s a guide to help you understand the three main types of mortgage loans commonly offered by banks and lenders.
1. Fixed-Rate Mortgage
Fixed-rate mortgages are the most popular choice. You agree to a set repayment amount over a fixed period, often 30 years, making it easier to budget. Many prefer 30-year mortgages due to their lower monthly payments and stable interest rates over time.
However, committing to 30 years means you'll pay more in total interest than you would with shorter terms such as 10 or 15 years. These shorter options suit those who want to own their home faster, assuming they can meet the higher monthly payments.
2. Adjustable-Rate Mortgage (ARM)
Adjustable-rate mortgages typically start with a lower interest rate than fixed-rate loans, resulting in lower initial monthly payments. However, these rates can fluctuate with the market, meaning your payments might increase if rates rise.
3. Convertible Loans
Convertible loans offer flexibility by allowing you to switch between a fixed rate and an adjustable rate. This option can be beneficial if market interest rates fluctuate.
Balloon Loan
A popular convertible option is the balloon loan, which starts with small monthly payments for a set period (usually 5?"7 years), after which the entire loan balance is due. This option is ideal for investors or property dealers who plan to sell the property before the lump sum is due, leveraging low initial payments without long-term commitment.
Special Mortgage Loans
Special mortgage loans target specific groups. For example, FHA loans assist first-time buyers or those with poor credit. Veteran Affairs loans are available to US armed forces widows, among others.
Before choosing a mortgage, consult with a professional mortgage advisor to find the best fit for your needs and qualifications.
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