When buying a home, a mortgage is often one of the biggest upfront expenses. To make that transaction more affordable, lenders can offer different types of mortgages. There are several different types of mortgages with varying terms and conditions. The most common ones include fixed-rate, adjustable-rate, and government-backed loans. The conditions attached to each type of mortgage will determine how much they will cost you in the long run. Understanding the different types of mortgages available will help you make a more informed decision on which one makes the most financial sense for you as a borrower and fits best with your current financial situation.
Fixed-rate mortgage
A fixed-rate mortgage is one that has a consistent interest rate throughout the term of the loan. This means that your monthly payment will not change throughout the life of the loan. Many people prefer this type of mortgage because the rate of interest is locked in for the life of the loan. This means that any increase in the interest rate will only impact the amount you pay in the future.A fixed-rate mortgage is also a good choice if you’t sure what your future income will be. Since your monthly payment is based on the remaining principal and the interest rate, you’ll know exactly how much you’ll have to pay every month.
Adjustable-rate mortgage
An adjustable-rate mortgage (also known as an ARM) has a variable interest rate that can change throughout the term of the loan. This means that your monthly payments will vary depending on the market rate at any given time. If interest rates rise, then your monthly payment will likely increase. This makes an adjustable-rate mortgage a risky choice for borrowers.However, adjustable-rate mortgages can make it easier to buy a home. You may be able to get an affordable loan amount with an adjustable-rate mortgage when your income is less certain. And, if interest rates fall, you can lock in a lower rate by making a higher payment each month.
Government-backed mortgage
A government-backed mortgage is a loan that is insured by the Federal Government through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). These types of loans are not available to everyone and only make up a small percentage of the market. A government-backed mortgage has a fixed interest rate for the life of the loan. These types of loans are ideal for borrowers who do not have a lot of money saved for a down payment.If you do not have a lot of money saved for a down payment, you may not qualify for a traditional mortgage. But, you may be able to get a government-backed mortgage.
Jump-start mortgage
A jump-start mortgage is a special type of government-backed mortgage that helps first-time homebuyers get into the market at a lower cost. This type of loan is only available in certain areas and the terms and conditions may vary from lender to lender.A jump-start mortgage is usually a low-interest rate loan that is based on your income and credit score. The government-backed mortgage is repaid with a balloon payment at the end of the loan. A jump-start mortgage can help make the home-buying process more affordable for first-time homebuyers.
Conclusion
There are many different types of mortgages available to prospective homebuyers. Each type has its own advantages and disadvantages. It’s important to understand the different types of mortgages to make a more informed decision on which one makes the most financial sense for you as a borrower and fits best with your current financial situation.