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First Time Home Buyer
There are several types of mortgages which can be used to purchase a home. It can be easy to get confused but it is worth it for the homeowner to take the time to become familiar with the various types of loans that are available. Just a little bit of research can help uncover advantages and disadvantages of each type of mortgage. Once they are understood, it is easier to determine which is the best for your particular situation. By the time a property appraiser has assigned a value to your home the next step will be to take out a loan. Property appraisals done by professionals like Abbe Edelman let buyers and lenders know what a reasonable price will be for the property. A lender will not typically let a homeowner take out a loan for more than the house is worth and the homebuyer can be assured that a professional company such as Regency Property Appraisers will assign a price that is comparable to other houses which are similar so they will not be over charged and borrow too much. Here are some of the basic types of mortgages that a homebuyer may choose to obtain.
Adjustable Rate Mortgages
An adjustable rate mortgage is a home loan in which the interest rates change based on the going rates. The payments on this type of loan can fluctuate with the changing of the national interest rates. This can be good as long as the rates go down; but when the interest rates take an upward turn so will the monthly payment. Generally, the homeowner will be assured the same low interest rate for a predetermined period of time which could be 3, 5 or 7 years and then it will be adjusted annually. The initial rates are typically lower than what is offered for a fixed rate mortgage.
Fixed Rate Mortgages
A fixed rate mortgage is a type of loan which will keep the same interest throughout the duration of the loan. These are some of the most popular types of mortgages and about three fourths of all home loans are a fixed rate mortgage. The advantage to a fixed rate mortgage is that there are no sudden changes in the interest rates or the loan and they will remain the same. Homeowners commonly take out 15, 20 or 30 year loans. The disadvantage to this type of mortgage is that if the interest rate falls, the homebuyer will not get a break but will be stuck paying the higher rates.
Reverse Mortgage
A reverse mortgage is a type of lifetime mortgage offered to homeowners over 62 years of age. The homeowner can exchange the equity they have paid into their home for cash. This can be drawn in a lump sum, or as monthly payments. They are not required to pay any interest and do not have to pay back the mortgaged amount until they sell the house; or at the time of death. As long as they continue to live in that house the loan does not have to be paid back. The disadvantage of this type of loan rests with those who like to prey on senior citizens. The individual seeking this type of loan should double check to ensure that it is federally insured.
Balloon Mortgage
Balloon mortgages are short term loans which is very similar to a fixed mortgage. The difference is that the balance of the mortgage is not paid off until the “end of the term” of the loan. The borrower will make small predetermined mortgage payments but then they will have a very large payment at the end to pay off the rest of the principal. This mortgage usually has shorter terms like 5 to 7 years in duration. The advantage is that the payments are typically much smaller. The disadvantage is that they may have to come up with a very large sum of money to pay off the remaining principal. If they cannot afford it, they may have to refinance.
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