Three Types of Mortgages
A mortgage on your house or property is a very huge financial commitment. Rushing into a decision on this matter is a very bad idea that can cause you huge losses and lots of headaches. So do your homework and take time to study your options before committing yourself to a lifelong decision.
Depending on your financial situation, you can find a mortgage option that best applies to your case. It will take from 20 – 40 years before a mortgage matures. Therefore, understanding the implications of the mortgage on your finances is a primary concern prior to agreeing on the terms of the loan. If you learn the pros and cons of each type of mortgage, it will help you decide on what type is best for you.
The three types of mortgage agreements are listed below.
First and foremost, you need to determine what your financial needs are, why you are applying for a mortgage. This should guide you in determining the type of mortgage that suits you.
1) Fixed rate or adjustable rate. If you are going to choose a fixed rate mortgage, then you will pay the same interest every month for the entire loan period. In an adjustable rate mortgage, on the other hand, the interest rates change. The advantage in a fixed rate mortgage, the money you pay out is the same each month; while in the adjustable rate mortgage interest rates can go down, and you pay less for that period.
But the mortgage that most people choose is the fixed rate mortgage. Fixed rate mortgage is ideal for people who plan to stay forever in the property; while adjustable rate mortgage is ideal for those who plan on moving.
2) The two types according to the presence of government backing are: government insured or conventional. Next, you need to determine if you want a government insured loan or a conventional one. There is no government backing in conventional loans, but the advantage of government insured loans is that you get backed up by the government in case of mortgage failure.
3) The two types according to size are: Conforming or jumbo loan. The next step is to determine whether a conforming loan or a jumbo loan is ideal for your situation. How much money do you want to borrow, is it just a small amount or a very large amount? For smaller amounts of money, conforming loans would be ideal; but for larger amounts, you need to apply for a jumbo loan.
The best way to guarantee your peace of mind in the future is to research your options carefully before mortgaging your home or your property.