It’s a rite of passage to owning a home because it represents financial security, ownership, and independence.
Many Americans take out mortgages in order to afford the payments on their dream home. However, not all mortgages are the same. If you’re looking to buy a home, it’s in your best interest to know the different types of mortgages and how they work.
To learn more about the different types of mortgages, keep reading to find out everything you need to know.
This type of mortgage is permanent and can span up to 30 years. It is secured by the borrower but is usually not insured by an agency such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Conventional mortgages typically require a higher down payment than other types of mortgages, with the minimum down payment being 5 percent.
It can also be adapted to suit individual circumstances through adjustable or fixed-rate loans. With a conventional mortgage, loan terms and conditions, such as:
- Interest rate
- Payment structure
- Length of repayment
That is agreed upon between the borrower and the lender. This type of mortgage is often more suitable for those who can provide a large down payment and have solid credit scores.
Joint Tenancy Mortgage
With a joint tenancy mortgage, all owners have an equal interest in the property and must jointly apply for the mortgage. If one owner dies, their interest automatically passes to the surviving owner(s).
Joint ownership comes with drawbacks as well, such as when the other co-owner doesn’t want to pay their share of the mortgage. Find out here what happens when a joint tenant force a sale.
Adjustable-Rate Mortgage (ARM)
With an ARM, the interest rate will fluctuate in response to changes in the financial markets, unlike a fixed-rate mortgage. Interest rates on an ARM are usually lower than a fixed-rate mortgage, but one should be aware of the possible increases that can occur due to market conditions.
The initial time period will typically be 3, 5, 7, or 10 years, after which the rate will reset and remain fixed for one, three, or five-year terms. The interest rate can increase or decrease over the length of the loan.
This type of mortgage allows borrowers to pay only the interest on their loan for a pre-determined amount of time, usually 5-10 years, in exchange for a lower initial payment and a temporary reduction in the amount of interest owed over the life of the loan.
While this type of mortgage may provide a great option for those looking to save money in the short term, it is important to remember that because borrowers are not paying down the mortgage principal, they will end up paying more interest over the course of the loan. As with any legal document, it is important to read and fully understand the terms of any mortgage agreement.
Choose The Best Types Of Mortgages That Suits You!
In conclusion, mortgages have many different types to choose from in order to accommodate your personal needs. To further understand the different types of mortgages and get the best suggestion for yourself, it is best to consult a licensed mortgage professional. Go ahead and make the efficient decision that best fits you to get the right mortgage.
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