3 types of mortgage loans for homebuyers

3 types of mortgage loans for homebuyers

When it comes to getting a mortgage loan, home buyers have fewer options than they've had in theboom years. From early 2000 until 2008, lenders have been more willing to exotic floating loans based on the dangerous conditions, but they have returned safely and reasonably sponsors.

Compare mortgage rates from reputable lenders

Buy home hoping to jump into the mortgage market will find three basic types of loans, for the most part.

With a fixed rate home loan, your interest rate remains the same for the life of the loan and the payment is divided into equal monthly payments throughout the period.

In the first few years, only a small part of the payment to pay off the principal. Most go to pay off theinterest.

"Fixed rate home loans could be 10 years, 15 years or 20, but the most popular is the 30-year becausethat makes your payment as low," said Floyd Walters, owner of the BWA in La Canada Flintridgemortgage, California.

Unlike a fixed-rate home loan, which sports an unchanging interest rate over the life of the loan, the interest rate on an adjustable-rate mortgage, or ARM, can change from year to year.

Hybrid ARMs, which are prevalent, feature aspects of both adjustable-rate and fixed-rate mortgages.

"Hybrid mortgages can be anything from a three-year, five-year, seven-year or 10-year fixed interest rate period," says Mark Klein, executive vice president of Skyline Home Loans in Calabasas, California. After the fixed-rate period, the loan is amortized over the balance of the term with a rate that adjusts annually.

"The lender will say, 'We will fix your interest rate at 4 percent for the next five years. At the end of five years, we will go out and find the value of one-year Treasury bills and add a margin to that and we will fix your interest rate on the loan for a year at a time based on that (index and margin),'" Walters says.

Typically, there will be a cap on the initial interest rate reset that is higher than all of the subsequent rate adjustments, and a cap on the amount the rate can change over the life of the loan.

For affluent home buyers with no regular income, the jumbo mortgage interest rates, as its name implies, allows the option to pay interest only during the first few years of the loan.

"You can pay if you want the original interest rate is only one choice," Walters said.

Today, mortgage interest rates are mostly jumbo loans. In the housing market the highest costs in the country, a jumbo loan is a mortgage for more than $ 625,500.

The interest-only loans are structured like mortgage interest rate adjustment. Time lasted only interested in five, seven or 10 years first. Then, the exchange rate is often adjusted annually, and the borrower must repay the principal as well as interest.

"When it resets, your payments could go up quite significantly, even if interest rates do not change much," Klein said.

No matter what type of loan are you on a home, do your homework first and make sure that there is no detailed information about mortgage loans that you do not understand.