About Home Mortgages
What is a Mortgage?
When you buy a home, you exchange money for a house. Since most people do not have hundreds of thousands of dollars saved up, this usually involves a loan from the bank. The loan is then repaid over time, with interest, and is known as a mortgage. The person who obtains the mortgage is the debtor and the bank is the creditor. If the debtor does not pay the debt, the creditor seeks a court-ordered sale of the property, and the debt is paid out of the proceeds. This is called a foreclosure.
In a reverse mortgage, a homeowner borrows against the value of a house to receive a line of credit or monthly payments. Reverse mortgages are used by older homeowners as a way of obtaining cash, and normally the loan is paid off when the homeowner dies or sells the property.
There are three main types of home loans that you can choose. Each has its pros and cons, and each are specified for a certain type purchase when selecting a home.
Fixed Rate Home Loans
Why would I use this loan?
A fixed rate home loan is the most basic type of home loan. The interest rate stays the same throughout the entire life of the loan. This type of mortgage is best if you plan to live in the same house for between 15 and 30 years.
What's the catch?
Although the actual rate stays the same, that does not mean that the taxes or insurance will not increase over time. Therefore, your mortgage bill might gradually rise in amount, especially with the tax rates today.
Another important thing about fixed rate loans is that the longer your loan is, the less your monthly payment will be. The reverse is true for shorter loans.
Adjustable Rate Mortgage (ARM)
Why use an ARM?
An ARM has a few things that set it apart from other loans. The most important thing about them is that you can schedule a change in the interest rate. This is best for people that are expecting a higher salary over the years, but want to start with a low interest rate.
What's the catch?
The catch is that when using an ARM, the interest rate is controlled by the U.S. Treasury, and may change over the years. The way to counter this is to try to get a fixed rate for the first few years when you ask for your loan. After the numbers of years are up, then the rate is susceptible to change.
Many people who got this type of loan found they could not make the payments when the rates went up, and the lost their homes. Thus, banks are not offering these types of loans as much.
Why use a balloon mortgage?
A balloon mortgage is a short-term, low interest mortgage. 5 to 7 years is best for this mortgage, and is good if you want to sell or refinance your home in the near future. This loan is also good if you are unsure about how long you want a mortgage for.
What's the catch?
The catch is that at the end of the term, you have two choices. One is to pay for the rest of the mortgage on the spot, and the other is to refinance the loan. If you don't have funds to pay the balance and your bank won't refinance, then you may lose your home.
Balloon mortgages have certain conditions in which they operate, and they differ from company to company. Be sure to ask your dealer if they do balloon mortgages and what the qualifications are for them.
Rates for Fixed Loans
Main Line Communities
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