Various Types of Mortgage Loans and Their Benefits
When you are filling the form of mortgage loan application then it is a good idea to know in advance about various types of mortgages which are available as well as their advantages and disadvantages. When you are choosing the mortgage you should just not only focus on interest rate but also the type of rate you'll be paying. There is variety of mortgage loans available in the market each has its own pros and cons. If you are not sure which is the right for you then, surely take the help of mortgage broker or do consider your friends referrals to avoid any future hassles.
Some mortgage loans and their benefits are as given below:
Fixed Rate Mortgage: As the name suggest, fixed rate mortgage is a mortgage in which the interest rate remains the same throughout the entire life of the loan. It is a most popular option for home loans and usually come in terms of 30, 15, or 10 years with 30 year option is being the most popular one.
Advantage: The major advantage of this type of mortgage loan is your payments will be exactly the same every month until the deal expires.
Disadvantage: The major disadvantage of fixed rate mortgage loan is it may be more expansive than other types and you won't get the benefits if interest rates go down as your rates remain unchanged.
Variable Rate Mortgage: These are the mortgages where interest rates can change at any time. This means that your repayments may go up and down as well. There is variety of variable rate mortgages but which one is right for you depending on which way interest rates are predicted to move.
Advantage: With this mortgage loan you have the greater flexibility to make changes without penalty. You can even pay off your loan early or even change the loan term as well.
Disadvantage: If you check the history, then the floating rates are higher than the fixed rates and when the rates go up the repayments will also go up which surely put burden on your budget.
Discount Rate Mortgage: As the name suggest, discount rate mortgage are bit like a special offer to draw you in. the discount rate will only be on offer for an introductory period usually between two to five years. After the completion of this discount period the mortgage will revert to the full standard variable rate.
Advantage: Discount rate mortgage starts off cheaper so if you are on a tight budget you can take the advantage of lower monthly repayments.
Disadvantage: It all depends on lender who can change its standard variable rate at any point of time and thus your discount rate will also change at the same time. If the rate goes up too much you may not be able to afford your mortgage payments.
Balloon Mortgage: Balloon mortgages last for much shorter period of time and work a lot like a fixed rate mortgage. The monthly payments are lower because of a large balloon payment at the end of the loan.
Advantage: There is no hard and fast rule regarding the payments which can be made at any date. It is also quite easy to refinance a balloon mortgage loan with another mortgage, secure loan or even a home equity loan.
Disadvantage: One of the major disadvantage of this mortgage is that these loans tend to have very small period of repayment and thus become difficult for people to cope up with balloon payment installments.
Various Types of Mortgage Refinancing Loans
Before discussing anything about refinancing first of all understand the term refinancing. In layman's words when a business or person revises his payment schedule for repaying his debts or wants to replace an existing or older loan with a new loan that offers better terms it is known as refinancing.
There are various issues that you have to think seriously before considering about refinancing like whether interest rates are fallen, or your credit score is improved now and makes you eligible for the lower-rate mortgage or you want to switch into different type of mortgage. You need to access all these worthy questions because they might influence your decision to go for refinance your mortgage. Many home owners consider refinancing their homes to minimize their mortgage interest rates or to reduce the length of their mortgage.
If you understand all the factors then only go for refinancing and search in the market various types of mortgage refinancing loans. Here we provide you a list of few.
15-Year refinancing loan: It is one of the popular options for home owners and is a common way of taking advantage of today's low interest rates. For home owners who have paid off part of their existing mortgage and don't want to restart paying for a new 30- year finance make this loan a good option. Fifteen year refinance loans generally offer a lower interest rate but on the other hand offer higher monthly payments than 30 year refinance loans.
30-Year refinance loans: Refinance loans with a new 30 year term is an attractive choice for the homeowners who want fixed interest rate and don't want to pay higher payments. So whether you choose 30 year or 15 year refinance loan reconsider the total interest expenses as well as new interest rate and payments etc.
Government Refinance loans: The federal Home Affordable Refinance Program or HARP lets homeowners to refinance up to 125 percent of the value of their homes. The Federal Housing Administrations lets homeowners refinance an existing loan which is insured FHA.
Interest Only Loan: With this refinancing option, homeowners will have to pay only the interest for a period of time as determined by the lender which surely helps them in certain situations such as impending foreclosure. After a period, one can start regular payments.
Balloon Refinancing loan: another type of flexible refinancing loan option available for the homeowners is the balloon refinancing which allows them to pay very small fixed interest rates for a certain period of time usually no longer than 10 years and then at the end of that period the full loan balance is to be paid.
Home Equity Refinance Loan: With this kind of refinancing you can cash out the equity you have in your home so that you can make major purchases. With this type of refinancing loan you have an option of fixed or variable rate but the cash will certainly be a great help in certain situations.