4 Popular Mortgage Loan Programs

4 Popular Mortgage Loan ProgramsBack in the day you basically had three types of mortgages you could choose from. These days there are literally hundreds of different loan programs available to buyers. Below I am going to discuss 4 of the more popular mortgage loan programs.

Fixed Rate Mortgage

Fixed rate mortgages are by far the most popular option when it comes to buying a home. As they say, it is the granddaddy of all mortgage loan programs. With a fixed rate mortgage you will have a fixed interest rate and a fixed monthly payment for the life of the loan. That means you never have to worry about anything changing on you. It is a great option for those who want more security.

You can choose either a 10 year fixed, 15 year fixed, 20 year fixed, 30 year fixed, 40 year fixed and even a 50 year fixed. That last two have come about over the last few years and the most common one is the 30 year fixed. All of these are fully amortized and have their own set of advantages and disadvantages. Do your research to find out which one will work best for you.

FHA Loans

FHA Loans are mortgages that are insured by the government. They basically add on mortgage insurance to make sure the lender is protected in the event that you default on the loan. FHA loans are perfect for first time home buyers. With this type of loan your down payment is very minimal and your FICO score doesn’t matter. That means more people have the chance to own a home.

Interest Only Loans

This type of loan can be a little misleading. In reality there is no such thing as an interest only loan. However, borrowers do have the option to pay only interest on the loan. This option is only available for a set amount of time. Once that period is over you will be required to make the full payment.

Adjustable Rate Mortgages

Adjustable rate mortgages have gotten a lot of press over the last few years. This is because these loans where one of the main reasons so many people lost their homes during the financial crises. Adjustable rate mortgages come in a variety of different shapes, sizes and colors. But for the most part they all work the exact same way. You initial monthly payments will be low.

This is what attracts people to this loan type in the first place. However, once that period expires you rate will be adjusted. How your rate is adjusted will depend on what’s going on in the market. It can adjust upwards or it can adjust downward. Depending on the terms of your loan your rate can adjust monthly, twice a year, once a year or remain fixed for a certain period of time before it adjusts again.

The problem with this type of loan is that your rate can go up quite a bit from month to month. That means there is no stability in regards to your monthly payment. Your payments can, and more than likely will, be different every month. Sometimes higher and sometimes lower. Unless you have some money to play around with, I don’t suggest going with an adjustable rate mortgage.