Three Different Types of Mortgage Loans to Consider

4 Aug

Three Different Types of Mortgage Loans to Consider

Purchasing a home is a considerable investment in your future and usually requires a substantial amount of capital. Most home buyers must secure some type of financing in order to be able to afford to purchase a home, so it is important to understand the different types of mortgage loans that are available. It can sometimes be overwhelming to figure out which mortgage is best suited to you because there are so many options on the market.  To help you understand the basics, here are three of the most common types of mortgages available:

  1. Fixed Rate Mortgage – This is one of the most popular types of mortgage loans. In fact, 70% of home purchasers choose this option. It features an interest rate that will not change for the entire term of the loan. This type of mortgage loan usually has a set term of 15 to 30 years, and the advantage of having a fixed rate mortgage is that it allows home buyers to manage their expenses better, knowing that their monthly payment will be the same every month.
  2. Adjustable Rate Mortgage – This type of mortgage loan has an interest rate that fluctuates according to the prime rate. Initially, the interest rate is fixed, usually for the first three to five years. After that, the interest rate changes monthly based on current interest rates in the market. The rate usually fluctuates within a spread based upon the conditions set out in the loan agreement. This can be a riskier option since rates could skyrocket and leave you with a much higher payment. However, it can also be very beneficial to home buyers if rates go down because their payments become smaller.
  3. Balloon Mortgage – This is similar to a fixed rate mortgage because it has a fixed and structured repayment schedule. However, this type of mortgage has a much shorter loan term; usually lasting only five to seven years. Once the loan term is complete, the borrower must pay the  outstanding balance of the loan, which is called the balloon payment

Jennifer Fields
Oklahoma City & Edmond Real Estate Agent
405.330.0031

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