Choosing the Best Home Mortgage: 6 Popular Options

There are several sorts of mortgage loans available, each tailored to meet the demands of a diverse variety of customers. You’ll see the benefits of each mortgage stated below and the type of borrower it’s suited for.

30-year Fixed-Rate Mortgage

 The 30-year fixed-rate mortgage is a house loan with an interest rate that is fixed for the loan duration.

Pros

• The most often used home loan
• Your interest rate is fixed.
• Monthly payments are lower than with shorter-term loans.
• It is simpler to qualify.

Cons

• Increased rates
• More money paid in interest
• Overborrowing is a risk.

Best for: Home purchasers looking for a cheaper monthly payment by spreading out payments over a long period. The payment is predictable because of the set rate. A 30-year fixed-rate loan allows you to pay off the loan faster by increasing your monthly payments.

Adjustable-rate Mortgage

 The adjustable-rate mortgage, or ARM, starts with a low introductory rate for a set period (three to five years). After that, the interest rate may go up or down.

Pros

• Many have low introductory rates
• Monthly payments stay low while the mortgage is initially being repaid

Cons

• Rates can rise after the introductory period
• Extra payments needed if rates rise
• Loss of prepayment privilege (ability to repay more than the minimum amount due)

Best for: Buyers who want a low monthly payment with the chance of a lower interest rate later, and don’t mind the risk of higher interest rates later.

Reverse mortgage

Reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs), can be used by homeowners age 62 or older to turn the equity they’ve built up in a home into cash payments.

Pros

• The loan is interest-free
• You can get a lump sum or monthly payments

Cons

• Must pay closing costs
• Monthly payments can be costly (due to high-interest rates)
• You must continue to live in the home or repay the amount owed
• Can’t borrow against amounts you don’t use

Best for: Those who would like to retire early or have low fixed incomes. Reverse mortgages can be helpful for those who can no longer work and have little income.

Interest-only loan

The interest-only loan lets you make only the interest payments for some time. You must then repay the loan in full or switch to a different type of loan. The interest-only loan can be a good option for borrowers who can afford the monthly payments but not the lump sum needed for the entire loan.

Pros

• Low initial payments
• Borrower has the option to pay off the loan or switch to a different type of loan

Cons

Interest-only loans carry lower initial interest rates than regular loans. The borrower can’t repay the loan

Best for: Borrowers who can afford the monthly payments but not the lump sum needed for the entire loan. Homebuyers who want to put only part of the down payment on their house.

VA Loans

VA loans are a type of mortgage loan offered by the U.S. Department of Veterans Affairs. VA mortgage loans are very similar to conventional loans, with a few exceptions.

Pros

• No down payment required
• No private mortgage insurance

Cons

• Must have a VA-approved lender to guarantee the loan
• Must get pre-approved for a VA loan before looking for a home
• Must meet the VA’s income and purchase price limits

Best for: Borrowers that are military-qualified and appreciate a low-interest rate and no down payment requirement.

FHA Mortgage

FHA mortgages are one of the most common types of home loans available today. Borrowers can get an FHA mortgage with a down payment as low as 3.5% of the home’s purchase price. There is no minimum credit score requirement, either.

Pros

• Low down payment requirement
• No private mortgage insurance

Cons

• Must have a lender approved by the U.S. Department of Housing and Urban Development
• Must have a credit score of at least 620
• Must meet the FHA’s income and purchase price limits

Best for: Borrowers who can contribute a small amount to a down payment and need a lower interest rate than they would find in the private market.

Your Team at America’s Mortgage Solutions

One of the biggest factors in buying a home is deciding which type of mortgage loan to get. All mortgage loans have many similarities, but they also have key differences. In this article, you have learned about the most common types of mortgage loans. Hopefully, you have a better understanding of the types of mortgage loans available to you. Are you a first time home buyer at North Palm Beach? America’s Mortgage Solutions can help! We’re dedicated to ensuring a smooth home purchase or refinance experience as home loan experts in North Palm Beach and all of Florida.  Please give us a call at (561) 316-6800 to schedule your consultation.