Imagine, owning your home, without owing a dime!
A surprising 68 percent of American homeowners over the age of 70 are completely mortgage-free, while 15.9 percent of Millennials are also completely clean and clear of their mortgage payments.
So, why is it that some people pay off their mortgage, while others struggle to keep up? It all boils down to choosing the right mortgage for your financial situation. When you have the right mortgage, keeping up with payments, and tackling interest will be easier than ever before.
Read on to learn about the different types of mortgage options.
Different Types of Mortgage Rates
There are a few different types of mortgage rates that you’ll come across. First, there are adjustable-rate mortgages. Next, you have fixed-rate mortgages. Finally, you can also choose to do a combination of both fixed and adjustable rates.
Fixed-Rate Mortgage
A fixed-rate mortgage has an interest rate that doesn’t change. The amount you pay every month for principal and interest stays the same for the entire life of the loan.
If you decide to get a fixed-rate loan, you should know that the shorter your loan period is for, the lower your interest rate will be. Examples of fixed-rate mortgages include 15, 20, or 30 years.
If you pick the 15-year fixed mortgage option, your interest rates will be the lowest. The reason for this is that lenders take on less risk when they agree to a short-term loan.
As the borrower, you’ll be able to enjoy paying less interest with a short-term loan. Of course, however, for a short-term loan to work, you have to pay off your mortgage within a shorter loan period.
When you choose a fixed-rate loan, you’ll only see changes in your mortgage payment if your property taxes or home insurance rates change.
Adjustable-Rate Mortgage
An adjustable-rate mortgage has an interest rate that can fluctuate. However, the interest rates are usually lower than those that come with a fixed-rate loan.
Your lower interest rate will only last for a set amount of time though. Once that period ends your interest rate, along with your mortgage payments, will go up or down.
Conventional Mortgage Types
Do you want to get a conventional or unconventional mortgage?
A conventional mortgage loan is one that the federal government does not back. Instead, potential homeowners will need to have proof of income, good credit, and the ability to make a down payment to qualify for a conventional loan.
Here are a few examples of conventional loan options:
- Freddie Mac
- Home loan programs for nurses
- Fannie Mae
One of the advantages of using a conventional loan is that the interest rates and fees are typically lower than on conventional loans. However, keep in mind that conventional loans aren’t backed by the government. That means that lenders can charge higher interest rates or require higher down payments than unconventional loan lenders could.
Unconventional Types of Mortgages
An unconventional mortgage gets it’s backing from the Federal government. If you default on an unconventional loan, the government will cover your losses. First time home buyers, and families with low incomes, can benefit from the stability a conventional loan offers.
Here’s a shortlist of different types of unconventional mortgages:
- FHA loans
- USDA loans
- VA loans
An FHA loan is one that comes from the federal housing administration. These loans are fully backed by the government and they help low-income families. You can qualify for an FHA mortgage even if you have a low credit score.
A USDA mortgage is one that’s backed by the US department of agriculture. Usually, you won’t need any type of down payment for a USDA mortgage. A USDA loan is typically a good choice for families that are trying to purchase a home in a rural area but need a low down payment option.
Finally, a VA mortgage comes from the Department of Veterans Affairs. A VA loan will only be available to veterans and active military service members. These loans are great for military individuals looking for the lowest interest rate possible.
Reverse Mortgage
For most mortgages, you pay to own more of your home over time. However, a reverse mortgage has the opposite effect. As time goes own, you’ll actually own less of your home.
You should only choose a reverse mortgage if you’re a senior citizen and you plan on never moving. A reverse mortgage allows the homeowner access to the loan’s equity.
The homeowner can decide to have the equity paid out to them and monthly payments, as a line of credit, or in one large lump sum. The lender will have a lien on your home for the total amount owed when the borrower becomes deceased. If a borrower should change their mind and decide to move out of the house, they’ll have to repay the funds from the loan equity.
Conforming and Nonconforming Mortgages
Every mortgage is either confirming or non conforming. A conforming loan is one that meets the underwriting guidelines of your chosen mortgage program.
For instance, the government-sponsored mortgages that come from Fannie Mae have to follow a strict set of guidelines. If you get a loan from Fannie Mae, and it follows those guidelines, you have a conforming mortgage.
However, sometimes loans need special agreements, and that’s where we come across nonconforming loans. For instance, let’s say you want to get your mortgage through Fannie Mae. However, the house you want is more expensive than a Fannie Mae loan can cover.
You would have to explore getting a jumbo loan, which is a non-conforming loan. Jumbo loans give you the ability to exceed the mortgage limits conforming loans like Fannie May abide by.
Get the Right Mortgage
Now you know about the different types of mortgage options available. As you can see, your particular financial situation will have a big impact on what mortgage is right for you.
Take your time, and make sure you choose a mortgage you’ll be happy with long-term. For more ways to secure your long-term happiness, explore the rest of this site!