Guide To Choosing A Mortgage Backed Loan For Your Home

Buying a home is a dream for every non-homeowner. When you want to buy a property, unless you have a truckload of money, you will need to get a mortgage loan. But do you know what kind of mortgages are available?

Having to select one property out of so many is a classic case of Paradox of Choices. The first thing you should do to prevent yourself from being in this situation is, going for pre-qualification. This will save a lot of your time and energy since you’d know for sure how much you can spend for the new house.

Angus Reed – An Experienced Real Estate Professional gives us some insightful information on the types of mortgages available for home-buyers.

Fixed Rate Mortgage (FRM): This is the oldest type of mortgage. The interest rate in FRM is selected at the time when the loan is sanctioned. The rate will not change for the entire life of the loan. The downside of FRM is, the holder won’t benefit if there is any reduction in the interest rates in the future. One can go for refinancing in future if there is a large difference in the interest rates.

Adjustable-Rate Mortgage: If you go for this kind of mortgage, the interest rate will keep on changing as per the prevailing rates, which depends on the state of the economy. The holder knows the risk that they are taking and expects lower interest rates in future. One thing that you should ask the lender is whether there is a cap on the maximum and minimum value of interest rate.

Convertible Mortgage: A convertible mortgage is somewhere between the FRM and the ARM. In this mortgage type, the holder has the option to convert from ARM to FRM at some specified points during the term. It is important to ask the lenders the questions like, will there be any fees for conversion? Will there be any difference between the ARM rate with this feature and the one without it? How can you convert and how often can you convert?

Graduated Payment Mortgage (GPM): In this mortgage, the rate is lower than FRM but gradually rises over a period of years and levels off in the remaining years to match with the FRM.

Growing Equity Mortgage (GEM): This mortgage type is designed for those who wants to pay off the debt as soon as possible. The interest rate remains fixed just as the FRM, but the amount of the monthly payment increases with time. One should go for this if they expect a regular increase in their income over the lifespan of the loan. Because of the quick repayment, the borrower will have to pay less interest.

Biweekly Mortgage: This is for the ones who can’t shell out the amount once per month in a single go. The borrower in this mortgage type makes two equal installments in a month.

Federal Housing Administration (FHA) insured loans: Department of Housing and Urban Development (HUD) has the responsibility for operates FHA which is a government home loan insurance program. Under this program, the borrowers who are not eligible in for loan can get the loan because the risk of the lender is covered by the FHA.

These are the mortgage loans that are usually available with the lenders. You must read the terms and conditions of the loan very carefully and ask about all the charges. Choose a lender very carefully on the basis of their policies. Remember, the lender you choose now will be working with you for 15 to 30 years.