These are also called traditional mortgages, as the terms are the industry standards and have been for some time. Fixed-rate mortgages typically feature either a 15-year or 30-year term and a fixed interest rate, meaning the interest rate does not change over the life of the loan. When you begin making loan payments, the majority of the payment is applied to your loanâ€™s interest. As time goes by, more of your payment is applied to your principal until the loan is paid off.
ARMs are also called variable-rate mortgages. In this case, your mortgageâ€™s interest rate is influenced by factors that are outlined in your mortgage agreement. In some cases, the variable rate is based on the prime interest rate, but it can be based on any number of factors agreed to by you and your lender. Most ARMs start as fixed-rate mortgages, and in some cases as interest-only loans. After a predetermined time, the loan becomes a variable-rate loan and the interest rate is reset on a standard basis, usually every year. According to the Home Buying Institute, some of the most popular ARM loans are 3/1, 5/1 and 7/1. For instance, a 3/1 means three years of interest-only or fixed-rate payments, followed by a yearly reset of your interest rate.
These mortgages are guaranteed by the U.S. government. Itâ€™s important to know the government does not make these loans. The loans are made by lenders who agree to conform to the governmentâ€™s standards for underwriting these loans. One popular program is guaranteed by the Federal Housing Administration. FHA is designed to help get first-time home buyers into loans with low down payments. FHA accomplished this by requiring mortgage insurance, which guarantees the loan for the lender in case of default. The Department of Veterans Affairs (VA) also guarantees loans made to veterans and their families. VA loans are considered some of the most attractive on the market, as you can secure one with no down payment, if you qualify.
With a balloon payment mortgage, youâ€™re banking that you can pay a lot of money on the back end. Youâ€™ll receive a low monthly payment at a fixed rate, typically for anywhere from five to 10 years. Then, at the end of the fixed term, you are obligated to pay the remaining amount. According to the Home Buying Institute, a $400,000 balloon loan written for a seven-year term would require you to make a $350,000 payment at the end of the term. Refinancing is a possibility at the end of the term, but your ability to do so will depend on your financial situation and the credit market at the time your balloon payment comes due.
You acquire these home loans after you initially purchase your home. The premise is simple. As you make payments toward your initial loan, you gain equity in your home. A home equity loan allows you to tap into that equity and take out a new loan. In this case, youâ€™re using the equity youâ€™ve built up to guarantee the loan. Home equity loans are not rolled into your existing mortgage. They are separate loans, and payments are made on each loan separately.
source : http://homeguides.sfgate.com/kind-mortgages-available-2347.html