What Are the Types of Mortgage Loans?

1. What Are the Types of Mortgage Loans? Buying a home is a dream for many people, but the insufficiency of funds and lack of proper knowledge of financing sources can be a hurdle in the path of buying the dream home. Different financial institutions offer various types of mortgage loans for different home buyers. Thanks to mortgages, gone are the days when people needed to worry about buying their homes. If you have a low-interest rate, low down payments, easy installments, and a well-structured financing schedule, you can easily buy your dream. What Is a Mortgage Loan? Source: bandhanbank.com A mortgage refers to the loan that an individual can avail of from any financial institution against collateral. It is different from a traditional loan because it finances a home specifically, whereas a traditional loan can be used for any purpose.

2. A mortgage is useful to purchase a home while living in it. You need to pay a small amount as a down payment. Different market players are providing mortgage loans at affordable interest rates. You should go through the terms of every financing before finalizing the terms of the loan. Types of Mortgage Loans There are different types of mortgage loans that you can use to buy a home. Different types of mortgage are: 1. Conventional mortgage 2. Fixed-rate mortgage 3. Adjustable-rate mortgage 4. Balloon mortgage 5. Jumbo mortgage Have a look at the different types of mortgage loans that you can avail of for a home for your dream life. Here you will find a glance at different loans, affordable rates, pros and cons of these loans.

3. Conventional Mortgage Source: homes2moveyou.com A conventional mortgage is a type of loan that you borrow from private lenders such as private financial institutions. The government does not provide any guarantee for these types of mortgages. These are kinds of private loans that you can raise from the banks and NBFCs.

4. Requirements for This Type of Mortgage Source: thesun.ie ● For these loans, you should have a strong credit history and sound position for payments. ● You must fulfill various documentation and legal formalities for it. ● The loan requires a minimum debt balance, good employment background, and sufficient funds for a minimum 3% down payment for a home. ● The credit score should be at least between 600. ● If you don’t put a minimum of 20% down payment, it requires you to pay private mortgage insurance till the possession of the house. These loans become conforming loans when fulfilling the limits set by government associations like Fannie Mae and Freddie Mac. The banks provide loans with quite interesting rates. These are between 1.99% to2.99% for 10 years to 30 years term period.

5. Fixed-Rate Mortgage Source: facebook.com A fixed-rate mortgage is available at a fixed interest rate for the entire term of the loan. You don’t have to panic about the fluctuations in the interest rates. You need to pay fixed monthly installments. Borrowers are fully aware of the payment. Banks and lenders generally provide these loans for a long-term period that ranges between 10 to 30 years. The interest rates for these loans are also significantly less like the conventional mortgage – ranges between 1.875% to 2.875% for 10 to 20 years. Requirements: ● You must have a stable source of income. ● It requires you to pay fixed monthly installments in every circumstance. ● Just like a private loan mortgage, it requires a strong credit score.

6. Pros and advantages: The fixed rate of interest is beneficial for those buyers and borrowers who do not like to change the monthly installments for the future time. These loans maintain a balance with your financial stability. The terms for the loans are also long, like 10 to 30 years. The long-term loans lower the amount for installments. Adjustable-Rate Mortgage Source: emmethouse.com An adjustable-rate mortgage is the opposite of a fixed-rate mortgage. In these loans, the banks and financial institutions allow modifying the interest rate after a certain period. For example, if you borrow Rs.100,000 from an ABC bank at a 3% interest rate for 10 years, then after 3-4 years, the bank can modify the interest rate due to various economic reasons, without your consent. The interest can also go up or down as per the market conditions. Increased rates will be unfavorable for loan borrowers. If the interest rates go down, it will lessen the number of installments to be paid.

7. Pros of the mortgage: ● During the initial period of home buying, the interest rates are low for the mortgage. ● Low-interest rate allows saving the finance for other purposes. It helps the buyers. Cons of the mortgage: ● If the interest rates are high after specific years of home buying, then it will create an extra burden on buyers. ● If the home value drops, it will create chaos for buyers as the home’s selling value may not cover the loan amount.

8. Balloon Mortgage Source: exame.com Refers to the name of the mortgage, it indicates the home loan that requires to pay a fixed small payment for initial periods, but at the end of the home loan period, it requires an outstanding amount of payment. This outstanding amount of payment is quite high as compared to the rest of the short payments for the entire term period. Generally, these are available for 15 to 30 years. At the end of the loan period, you will have to finish the entire loan with the highest payment. Using the different Balloon mortgage calculators available online, you can check the monthly payments, interest rates, and balloon payments at the end of the loan period.

9. Pros of Balloon mortgage: ● It requires small monthly installments, initially. The interest rates are also low as compared to the adjustable loan and fixed-rate loan mortgage. ● An important benefit of this mortgage is that you can sell the home before the balloon payment. Other mortgages do not provide this opportunity. Cons of the mortgage: ● Sometimes the balloon payment is unpredictable. In this situation, you will face a problem while paying installments. ● If the interest rates rise in the future, you might sell the house to refinance the loan you bought using the loan credit. Jumbo Mortgage Source: ourhomeplace.com The Jumbo loan mortgage is a conventional cum confirmation mortgage that exceeds the limits set by the Government associations. Generally, it is a high-cost and high-value loan. Financial institutions provide this type of loan in high-value areas.

10. It requires more documentation, a strong credit score, and economic conditions for better repayment. If you want to finance your home through this loan mortgage, then the credit score should not exceed 600. The amount of loan depends upon your financing requirements rather than the value of the property. Pros and cons of this mortgage: The main benefit is for the affluent and high net worth buyers who can finance their homes with huge funds. It allows you to borrow at a high value that does not allow in other types of mortgages. Apart from the pros, the main disadvantage of this loan mortgage is that you have to keep a high installment to pay after every interval. It could create a series of burdens if you did not plan for it.

11. How to Choose the Best Mortgage for Your Home? Source: facebook.com Buying a home will be a reality for your dreams with the right mortgage. Mortgages are an important financing source that can fulfill your dream. To make the right choice of mortgage, a buyer should know its different aspects. The nature of the mortgages and the terms are important determinants that affect the selection. For a perfect choice, you must analyze the home value, your financial position, existing debt level, future earnings, and terms of the loans. This analysis will provide you perfect financing for your home. For more finance-related concepts you can have a look at the FinanceShed, and stay tuned for more updates.

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