It is important that before you take out a mortgage, you know about their basic characteristic features. Explained below are some of the most common mortgages and their pros and cons.
- Fixed rate mortgage:
- Pro – These are the most stable of mortgages without any sudden surprises. The interest rate stays the same over the entire term of the mortgage, usually 15, 20 or 30 years. Thus the payment remains the same also.
- Con – In case the market interest rate falls, you still have to continue paying the old high interest rate.
- Adjustable rate mortgage:
- Pro – These usually offer a lower interest rate to begin with as compared to a fixed rate mortgage loan.
- Con – After the initial period of low interest, the rates fluctuate over the entire lifespan of the loan. As the interest rises, so does the loan payment. Also there is no stability as the payments keep changing.
- Federal Housing Administration (FHA) loans:
- Pro – These allow buyers with lower income and average credit score who may not be able to qualify for a home loan to get a low down payment.
- Con – The amount of money you get as loan might be limited.
- Veteran Association (VA) loans :
- Pro – These are guaranteed loans for veterans who are eligible, active duty personnel and surviving spouses of deceased veterans. These offer competitive rates and low or no down payments.
- Con – The size of the loan you take out may be limited.
- Balloon mortgage:
- Pro – These are usually a fixed rate loan with relatively low payments for a certain period of time.
- Con – After the initial period of low payment is over, the entire balance of the loan is due immediately. They can be quite risky for you if you don’t know what you are doing.
- Interest only mortgage:
- Pro – You can pay only the interest on your mortgage in monthly installments for a certain period of time.
- Con – After an initial period of time, the balance of the loan is due. This means you have to make much higher payments henceforth, make a lump sum payment or refinance your mortgage.
Thus you can see the advantages and disadvantages of the major kinds of mortgage loans. You can now choose the one which is most appropriate for you.
(This guest post is presented courtesy of EasyFinance.com.)