Mortgage Programs and Loan Options

There are different types of mortgage programs and loan options that is available. What we need to know is the type that is best suitable for you since financial decision is critical in buying your new home, downsizing or moving up. These different type of mortgages vary in length, terms, rates and other factors.


So, how do you determine the type of mortgage you are most suitable with?

30 Year Fixed Mortgage
30 Year Fixed Mortgage
The most popular type of mortgage. This is the type of loan that has a fixed interest rate for the entire duration of the loan. What’s good with this loan is that the payment if affordable compared to mortgages with short term. It can also be obtained with small down payment percentage.
The drawback in this type of loan is the length itself. 30 years is a very long time. Another drawback is that the interest rate is higher.

15 Year Fixed Mortgage
15 Year Fixed Mortgage
Similar to a 30 year fixed mortgage but with lower length of pay period. Not all buyers will be eligible for this type of mortgage. The advantage of this loan is pretty obvious, the fact that you get to pay the loan in a lesser period of time is already an advantage. The interest rate is also lower than the previous mortgage type. More time for you to save up for your retirement.
Unlike the 30 year fixed mortgage, the drawback on this one is that you have to cover the difference in time with a higher monthly payment.

Adjustable Rate Mortgages (ARMs)
ARM is a mortgage that will have an adjusting rate at a specified time and frequency. Depending on the trends in the market, ARM rate will have a traditionally lower fixed rate during a specific time. ARM is attractive to some buyers mainly due to the initial rate. Another advantage of an ARM is that once the rate begins to adjust and is lower than what they have when they purchased the home.
The drawback is pretty obvious. It is when the rate adjusted and is higher than what they have when they purchased their home. It really can be a pain in the pocket and can be really difficult to budget.

Balloon Payment Mortgages
Some buyers also consider this type of mortgage. This mortgage begins with a normal monthly payments for a specified time and at then, the loan will balloon at the end of the loan period. The advantage of this mortgage is that the interest rate is generally low. Some even have a lower rate than the fixed rate type or even ARM. This type of mortgage is common to those who are planning to move out in a short period of time and will sell the property before the balloon payment is due.
This type of mortgage is pretty risky. Some buyers even have to reconsider to refinance once the balloon payment is due. Take note that during that time, the value of the property can decrease or increase. So it will definitely be a problem if the value is much lower than it was when the buyer purchased the home. This type of mortgage has a greater risk of being foreclosed.

Bottom Line
Knowledge is power when purchasing a home. One wrong decision can be considered a calamity on one’s pocket. It is best for you to think it over and ask help or advice from professionals.

Refinancing Your Home


Before we talk about refinancing your home. Let’s talk about what refinancing is.
According to Investopedia,

A refinance occurs when a business or person revises a payment schedule for repaying debt. Mechanically, the old loan is paid off and replaced with a new loan offering different terms. When a company refinances, it typically extends the maturity date. Companies or individuals refinancing loans may have to pay a penalty or fee.

So what are the questions that you should ask before refinancing?

1. Is there a prepayment penalty on my current mortgage?
This should be asked to your lender. Many mortgages will charge you for a prepayment penalty. It can be several month’s worth but it still varies.
2. What are the cost of the new mortgage?
This really depend on the program that you’re qualified to have. Even if there are extra fees, you can still negotiate with the lender.
3. Will my tax savings be reduced?
This will be answered by your tax adviser. Have your tax adviser check if your overall savings will be increased if you refinance.

Checkout this Infographic and see the reasons why should you start considering to refinance.