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(Click on the type of mortgage below to
go directly to the information)
MORTGAGE:
Buying a
house is usually the biggest investment an individual will
make in their lifetime, and mortgage repayments are normally
required for anything up to 30 years after the mortgage has
been issued. For this reason, one should seek professional
financial advice if undecided about which mortgage plan is
the one to go for. A mortgage is effectively a
personal loan that is obtained from a bank or building
society used to pay for a property. The lender is then
repaid in monthly installments for a fixed period of time.
As with personal loans, mortgages are subject to interest
charges. A repayment only mortgage requires monthly
repayments that consist of both interest charges and actual
capital repayments; effectively the same as the repayment
process for a typical personal loan. An advantage of this
type of mortgage is that lump sum payments or overpayments
can be made, which reduces the interest and capital amounts
repayable. Also, at the end of the repayment term, the
borrower is safe in the knowledge that the mortgage has been
completely repaid. There is also a disadvantages in that the
majority of repayments made early in the repayment term
consist of interest payments. For a borrower who moves house
frequently, this can be a hindrance as little of the actual
mortgage gets repaid. Also, because it is not necessary to
take out life assurance cover with this type of mortgage,
the property will have to be sold to repay any debt that
remains in the case of death of the borrower.
CONVENTIONAL:
This mortgage is a contract between
the lender and the borrower, at the lender's risk. If the
borrower fails to make payment, the lender can repossess
your home. This mortgage is not insured by any federally
insured program. However, it may be insured by a private
mortgage insurance program. Conventional mortgages typically
require larger down payments than FHA or VA loans.
FHA:
The Federal Housing Administration (FHA) will insure the
loan for the lender against loss in case the buyer cannot
meet payments. This loan requires the borrower to carry
mortgage insurance through FHA. These loans are available to
borrowers with as little as 3 percent down payment.
VA:
The Veterans Administration (VA) will guarantee the
mortgages offered by private lenders to qualified borrowers
of the armed forces, active military personnel, veterans, or
their widows. In some cases no down payment is required with
this type of loan.
JUMBO:
Some lenders will negotiate special
terms for properties with high value that fall outside
typical lending standards.
The term
"Jumbo Mortgage" is used to describe mortgage loans
exceeding current Fannie Mae loan limits. Lenders use this
term to define products offered above and beyond these
limits and offer special pricing due to the higher loan
amounts. Programs range from "Interest Only" Libor Loans to
Fixed Rate Mortgages.
ADJUSTABLE RATE MORTGAGE (ARM):
On this type of mortgage the interest
rate can vary up or down. The rate is determined by
financial indexes such as one-year Treasury notes. The ARM
offers a low beginning interest rate. This rate will go up
over time. When interest rates are low, this type of
mortgage might be a good option. Especially if its cap (the
highest interest you may be charged) is not more than a few
points higher than the current fixed rate. If you know your
income will be rising in the future or you know you will not
own your house for many years, this type of mortgage might
be right for you.
Things to consider if you are considering an ARM:
-
What is the adjustment period (the time between interest
rate changes)?
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What index is used to determine the interest rates?
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Does the introductory rate differ from the normal rate?
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What is the margin (the percentage added to the index
rate each time your loan is adjusted)?
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What is the period adjustment cap?
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the lifetime adjustment cap?
BALLOON MORTGAGE:
These mortgages are offered for a
short term, typically 5-7 years but payments are based on
what you would pay for a 30 year loan. The payments are low
with a large payment due at the end of the term. At the end
of the term, some balloon mortgages offer the option to
extend the mortgage for the remainder of the 30-year term.
The new monthly payments would be based on the rates at that
time.
FIXED RATE MORTGAGE:
The interest rate in which you
obtained your mortgage will remain the same for as long as
you own your mortgage. No fluctuations in the market will
change your rate. You will always know exactly how much you
will pay each month in principal and interest. (Taxes and
interest may change from year to year.)
INTEREST ONLY MORTGAGE:
An
interest only mortgage requires monthly payments that
consist solely of interest payments. The capital repayments
are paid into an alternative repayment vehicle such as a
pension scheme, ISA or endowment policy; it is this
repayment vehicle that provides the lender with the repaid
capital at the end of the term.
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