More Than One Way To Skin A Cat Or Get A Mortgage

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The world of lending in 2010

For a home purchase, borrowing money has some rules. Lending is an intricate industry, the landscape of which has changed recently, and people need to be aware of loan options available to them. Mortgages are confusing these days and every different type of loan has variables that determine a different overall cost and payment throughout its lifespan. Mortgage products are relatively easy to compare, and just knowing the basics can help potential borrowers know what makes sense for them.

The 30-year fixed mortgage

The most common type of mortgage is the traditional 30-year fixed model. The fixed rate combines with a long term on the loan. That breaks down payments and makes them manageable for millions of American households. This loan is best for people planning on staying in a home for a long time and don’t want a payment subject to variation. Though throughout the past few decades this is the type of mortgage that prevailed, in the past five years other more unusual mortgage loans began to take hold. Experts claim they are the reason behind the housing crash in the recession. They think too many lenders strayed from the 30 year fixed mortgages to lend to more customers.

15 Year Fixed

This mortgage is very similar to the 30-year fixed mortgage. The difference is that interest rates on these types of loans traditionally are lower due to banks having a lower long-term risk. Borrowers pay off this type of loan in half as much time as its 30-year counterpart and it grows equity faster as a result. This is a great option for borrowers who want to pay back their mortgages faster. It’s a good option for borrowers that want to refinance without extending the term out to 30 years later.

The 1 Year ARM

ARM stands for adjustable-rate mortgage. These loans don’t have a guaranteed rate over the term of the loan. There is an introductory rate on these loans that lasts for 1-year. Rates for these loans are significantly lower than those for other types of loans and the term is usually 30 years. Consumers borrowing money short term might like this option. Buyers that don’t plan on staying in their home for long can get lower payments. It also works well for borrowers with the ability to make higher payments due to larger incomes.

5/1 ARM

The 5/1 ARM is another adjustable-rate mortgage that has a fixed rate for the first five years. After the initial five years, the rate adjusts periodically. Normally these are also 30-year long loans. These are good for borrowers planning on selling within five years and want mortgage payments to be low. Borrowers with income to support these payments might find them to their advantage. You have to remember that the interest rate isn’t guaranteed. Buyers benefit from a fall in the interest rate, but are stretched when it rises.

Other loan types

Lenders came up with numerous other loan structures to serve those borrowing money prior to the recession. There is an interest-only mortgage that allows a buyer to pay just the interest and leave the balance untouched. Balloon mortgages offer lower rates, but then require a large sum payment. Assumable mortgages can be transferred from a homeowner to a buyer to eliminate the need for a new mortgage for the sale. Borrowers should consult with an expert before getting a mortgage to determine the best mortgage loans for their needs. They can assure that the mortgage product they get is truly the best one for their situation.

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