Finding the perfect home for you to start or raise a family is only part of fulfilling your dream of home ownership. The other equation is obtaining a mortgage loan, so you can buy that home and pay if off by the time you've reached your golden years, if not before. There are many types of mortgage loans available, so it is important to have a basic understanding of the options out there for you.
A traditional mortgage is also known as a fixed-rate mortgage loan. The interest rate on and your monthly mortgage payment are determined at the start of your loan and do not fluctuate up or down for the life of your loan.
Graduated Payment Mortgage
A graduated payment loan is a type of fixed-rate mortgage loan, but your payments rise over a period of 5 to 10 years. At first, the your payments are fairly low, and they rise over a period of time, and then remain at a fixed rate for the remainder of your loan. These loans are ideal if you are expecting your income to rise in the coming years, and can afford higher payments at during that time.
Adjustable Rate Mortgage
Adjustable rate mortgages start out with an interest rate that is somewhat lower than what comes with a traditional fixed-rate mortgage. However, as the market conditions change, it can create a fluctuation in the rate of your loan, which is often determined annually. If you go with an adjustable rate loan, choose one that allows your monthly payments to decrease as well as increase. You should also find one that limits the amount that your monthly payment can change at any one time and the amount it can increase or decrease over the life of your loan. Most adjustable rate mortgages do include these kind of caps.
Sometimes a seller's mortgage loan can be taken over by the buyer at the seller's interest rate. This is known as an assumable mortgage and is often a good choice if you want to get a lower interest rate than the current prevailing rate. However, when interest rates are high, lenders don't generally like to make this type of loan because they can make more money on a new loan.
If you are lucky enough to be offered an assumable mortgage loan to cut interest rates, make sure you read the mortgage agreement carefully to make sure there is no "due on sale" clause, which gives the lender the right to raise the interest rate when you take over the loan.
A balloon mortgage require you to make a series of set-priced monthly payments, which is often interest only, and then make one large final payment, which is the balloon. The balloon payment is often due about 10 years after the loan began. You must be careful with type of loan and make sure you can make the final large payment. If you cannot make the balloon payment, you'll have to sell your home or refinance it.
You can work with your real estate agent or broker to determine which type of loan may be right for you based on your financial situation and credit rating. Then, brace yourself for the paperwork! For more information about the process, contact a company like Thousand Islands Realty.