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To choose and purchase a house is no doubt a tedious task, it however becomes difficult to choose a type of mortgage loan after the home selection is done. The loan applicant needs to take into consideration regarding the type of loan to be finalized. We always want to enjoy lower interest rate on any type of mortgage loan. We have discussed various types of mortgage loans here for your ease.

Fixed rate mortgage loan: With the fixed rate mortgage loan, you may or may not enjoy lower interest rates since with fixed rate mortgage loan, interest rate will be same all over the period irrespective of the market position as it was while the loan was originated.

Variable rate loan: With variable rate mortgage loan, interest rates will fluctuate over the period of loan, if the prime rate of interest falls below the prime rate of interest, home owner will enjoy lower interest rate and thus can save more, however if it rises above the prime rate of interest, the homeowner has to bear cost with higher interest rate.

A capped loan allows home owner to enjoy lower interest rate than a prime rate of interest if available and also the rate of interest will not rise above the particular limit. Another loan is where a homeowner takes out a mortgage for a variable interest rate loan. While the interest rate will fluctuate in accordance with the current prime, the interest rate the consumer pays will always remain a certain number of points below whatever the current prime rate is.

Homeowner also needs to decide on a 15 year mortgage or 30 year mortgage which ever suits according to the requirement, both of which have its advantages and disadvantages which will be discussed in the following post.

Till then, have a nice time!!

Buying a Home is daunting and a big life experience. Mortgages forms an important part of home buying process, however many of us are confused with the type of mortgage to opt for and due to lack of basic difference in these types of mortgages we land up applying for unsuitable type of mortgage.

Here mentioned is the list of mortgages with the basic difference so that you are not mistaken with your decision of choosing  mortgage.

Fixed Rate Mortgage Loans:

This mortgage provides the same interest throughout the loan period which means that even if the interest rates goes up during your loan tenure, your interest rate remains unchanged, this is the biggest benefir offered by fixed rate mortgages, however the disadvantage is that in case the inetrest rate is lowered during your loan tenure the intererst rate for your loan is same, But this can be overcome by refinancing your home at lower rate and enjoying the benefits. Fixed rate mortages are available for 10, 20 or 30 years.

Adjustable Rate Mortgage (ARM)

The adjustable rate mortgage provides fixed interest rates initially with initial monthly payment. However after some time depending upon the market conditions, the loan is subjected to change and so the interest rates. If you plan to stay in new purchased home just for some time, then Adjustable rate mortgage proves beneficial to you such that you can sell the home before the fixed rate period expires and also enjoy the lower interest rates.

Balloon Loan

Balloon loans are short term loans with the fixed rate of interest, The payments to be made initially in the Balloon loans are small, generally for the introductory period, this introductory period can be 5 years, 7 years or 10 years, after which you are required to refinance or payoff the remaining balance with the lump sum amount which is also called as balloon payment.

Government Loans (FHA, VA, RHS)

FHA Loan – Federal Housing Administration issues this loan and is open to all qualified homebuyers. FHA loans offer low down payment of upto 3 to 5 percent.

VA Loan - Department of Veterans Affairs insures a long-term, less or even no-down-payment loan. Because the VA insures this loan, it has the added benefit of zero down payments. This type of loan is only available to qualified military veterans who have obtained a certificate of eligibility from the Department of Veterans Affairs.

RHS Loan - The Rural Housing Service (RHS) loan offers low interest rates with no down payment. It is available to households with low to moderate income located in rural areas or small towns.

Hope you are clear with fundamentals of mortgages, so relax and enjoy your home buying experience.