Different Types of Mortgage Loans to consider

There are various types of home mortgage loans to choose from with diverse offerings and mortgage loan application options. In the past almost everyone selected a 30 yr fixed rate home mortgage. Now, there are so many different options that are targeted at a certain group of individuals in different financial situations. If you are a first time home buyer or have purchased many homes, the type of mortgage you select is very important in Sacramento.

ARM (Adjustable Rate Mortgage)

If you know that you are going to be living in your home for a few years an Adjustable Rate Mortgage is the best. An adjustable rate mortgage is also called an ARM. ARMS's have a fixed interest rate and fixed payment for a number of years. The mortgage payment is usually based on the amount to payoff the entire mortgage balance at the end of the term, which is usually 30 yrs. The most common types of ARMS are 1 yr, 3/1 yr, 5/1 yr and 7/1 yr ARM, After the initial period is over, the rate and term of the mortgage will be adjusted annually to current market mortgage rate if you do not refinance the loan. Most ARMs have caps on how much the interest rate may increase after the loan expires. ARMS are very popular because the rates are usually about 2-3% lower that a fixed rate which means lower payments. The less number of years usually means the lower interest rate. A 1 yr ARM will have a lower interest rate than a 5/1 yr. ARM.

FIXED RATE Mortgage

If you know that you are going to be in the house for a number of years then a fixed rate mortgage is best. A fixed rate mortgage is the most common and usually are 15 yr or 30 yr mortgage loan. A fixed rate mortgage is good if you know you will be living in your home for a long time and you don't have to worry about your payment ever increasing. The payment will be the same for the entire life of the loan. The first payment will be the same as the last payment. If the rates go up you will have an advantage because your rate is fixed at a lower rate which means your payment would not go up. But if the rate drops tremendously your rate will not go down unless you refinance your mortgage. Rates went up to 18% at one time and as low as 4% at another time so it is hard to tell what will happen.

A 15 year mortgage will have a little lower interest rate and a higher payment than a 30 year fixed mortgage rate. The advantages to this type of mortgage is that you will get more equity by paying down the principal balance. You also will have the loan paid off faster and will not have paid as much total interest when the loan ends. It could save you $100,000 or more in interest.

A 30 year mortgage will usually have a higher interest rate than a 15 year and a lower payment. This is a good type of loan to get if you are short on money or cannot qualify for the higher mortgage payment. If you start to make more money and want to pay off the mortgage balance faster you can always set up bi-weekly payments with your lender. You also can just pay more money every month and apply it to the principle balance. The lenders usually do not have a penalty for this.