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When you are in the market for a home mortgage loan, you may find you have several types to choose from. Private home mortgage loans come in four basic loan types. One way to sort through them is by having an understanding of the common mortgage loan types. Keep reading to learn more about typical private mortgage loans and what they do.
Conventional mortgage loans are the types of loans most homeowners get. You work with a private bank to arrange funding and terms. You can get both short-term and long-term mortgage loans. You won't have to put a large down payment, but the lender will require you to pay a certain percentage.
Conventional loans have limits based on what the two biggest loan underwriters, Freddie and Fannie Mac, require. If you plan to buy a higher-end home, you may not qualify for a conventional loan. You would also have to pay private mortgage insurance unless you pay a substantial down payment.
Adjustable Interest Loans
Adjustable interest loans have an interest rate based on the current market rate. Usually, you start with a low rate and have it adjusted later. These loans are good for times when interest rates are low. You could end up saving a lot of money if the interest rates don't go up. The drawback is if the market interest rate goes up, so does your monthly payment.
Fixed Interest Loans
With a fixed interest loan, you start with a certain interest and keep it for the life of your loan. Usually, you must take out a fixed-term loan. The good thing about these loans is your mortgage payments stay the same throughout your term. The bad thing is you may end up paying more interest overall if your term is longer.
Jumbo Mortgage Loans
Jumbo loans are loans for homes that cost more than the Freddie and Fannie Mac limits. The interest rates tend to be as favorable as conventional loans. However, you will need to put out a substantial down payment to get this type of loan. In addition, you will also need a good credit score and other assets.
Which loan type is right for you depends on your circumstances. In general, the larger the down payment you can gather, the more choices you have. In addition to these four mortgage types, you may have additional options for special circumstances.
Examples of other options include interest-only loans or balloon mortgages. You can also get government-backed loans. To get a more thorough explanation of mortgage loans, talk to a mortgage loan lender or broker.Share
16 November 2021