Just as there are several different types of homes and neighborhoods from which you can choose, the same is true of your options for different types of mortgage loans. While Wyndham Capital Mortgage may not be able to help you narrow down your choices for your next home, we can most certainly apply our expertise in educating you on five different types of home loans as well as their advantages and disadvantages.
5 Types of Mortgage Loans and What They Mean for You
The interest rate for a fixed-rate mortgage won’t change over the entire life of the loan. In addition to having the same interest rate for the full term of your financing, you’ll also have the same monthly payment. While the predictability of such a loan can be quite enticing, you also have to consider the fact that the rate you lock in could drop in the future, which can leave you drowning in tears of remorse. Thankfully, you have the option of refinancing in the future, so all hope it not yet lost if interest rates start dipping in the future.
Turn fixed-rate mortgage loans on their heads and you’ll have adjustable-rate loans. Should you opt for this type of loan, your interest will shift about once a year. Something to focus on with adjustable loans is they can have the features of fixed-rate loans before shifting into adjustable loan territory. For instance, 5/1 adjustable home loans have a locked in interest rate for five years before that rate adjusts once a year. While the lower initial rates that often accompany adjustable loans are preferable to those of fixed loans, your rate and payment can increase in the future.
Members of the military and their families have the option of applying for federal government-guaranteed mortgages offered by the U.S. Department of Veteran Affairs, or VA. In addition to the lending institution being compensated for any loss resulting from borrower default, VA loans allow borrowers to receive full financing for a residential property, and that includes the down payment. In regards to the downsides of this loan option, there is a fee that must be paid for the VA mortgage, which often ranges from .5 to roughly three percent of the loan.
The Department of Housing and Urban Development, also known as HUD, offers a loan sponsored by the Federal Housing Administration. Every type of buyer under the sun and moon qualifies for FHA loans, and you don’t have to drop a hefty down-payment bomb, making them ideal for hopeful homeowners who are unable to save up enough for a regular down payment amount. Disadvantages? You’ll likely end up paying more in interest over the life of the loan compared to the interest you’d pay with a conventional loan. Borrowers also need to have mortgage insurance for FHA loans.
You may change your mind about the terms of your loan, just as you may change your mind about how you like your smartphone or laptop. When/If that happens, in regards to your mortgage, at least, you can have it refinanced. Refinancing a loan is essentially giving the borrower a brand new loan with brand new terms. This loan option is common when interest rates shift for the better, homeowners want to pay off their loan faster and when they want to use the equity for a source of funding. Downsides to refinancing include penalties for paying off your mortgage and potentially decreasing your home’s equity. You’ll also have to pay for points, fees and closing costs, which can chip away at the total amount you save by refinancing.
Take some time to review and digest the above info, and be sure to consult with a mortgage professional should you have any questions or concerns.