With so many different and various types of mortgages exist, knowing how to choose the right one can be oftentimes challenging. To be able to understand the various options, we have provided a brief breakdown. Keep in mind that the country has been in a mess regarding mortgage lenders giving out money to people that could not afford to buy so be sure you are in a financial position to succeed as a homeowner.
The first type of mortgage is a Fixed Rate Mortgage, which also referred to as an FRM, designed so the interest rate would never change throughout the life of the loan. The benefit is that every month, the amount of the mortgage payment would be consistent, making it much easier to create a monthly budget.
Next is the Adjustable Rate Mortgage, or ARM, which differs from an FRM in that the approved interest rate would fluctuate depending on movement of the current market. Typically, mortgage lenders prefer to offer ARMs in that some of the risk would be eliminated. For instance, if mortgage rates increase, interest rates also increase. Of course, interest for an ARM can also go down and typically, the rate at loan origination would be lower than what you could get with an FRM.
While the ARM sounds similar to a Graduated Rate Mortgage (GRM), they are different. For the GRM, the interest rate would change but instead of jumps, the increase is done gradually over a specified amount of time. Because you would be notified of any change in payment, you know exactly your monthly obligation. Additionally, this type of loan starts low and as the term progresses, the payment would increase. Usually, people buying a first home, moving to a new city, or starting a new career would consider the GRM over other mortgage options.
One last mortgage type we want to address is the Balloon Payment Mortgage, which could be established with fixed or adjustable terms, based on the lending institution. The main consideration for this particular loan is that while monthly payments start low, once the loan reaches maturity, you would be required to pay any balance in one, lump sum, which is generally large. Most often, a balloon loan would only be offered to commercial borrowers in that risk for residential borrowers is too great for lenders to approve.
Remember, while this information should help, if you are unsure as to the right mortgage for your specific situation, we strongly recommend you visit your local bank, a mortgage company, or other lending institution for guidance. In addition, you can try to search through top search engines for mortgage calculators and crunch numbers on your own.
Thomas Stevenson is a real estate investor based in Texas. He is a former estate agent and writes widely about issues related to real estate and finance. His current interests are focused on the UK home buyers market and how it’s been affected by their property crash.
Author Resource:
Thomas Stevenson, Freelance Writer. We are committed to providing free helpful information about the real estate market. If you want to know more about UK home buyers market visit http://www.sellhousefast.co.uk/ .
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