One of the most important parts of a real estate transaction is securing the right mortgage loan. Fortunately for today's borrowers there are plenty of types and options available. It is a matter of having good enough credit, earning enough income and deciding on which type best fits the situation.
Fixed Rate Loans
The most traditional choice for a real estate mortgage is a fixed rate loan. This is a debt that is fully amortized, meaning that the interest rate is fixed for the life of the loan and the interest and principal are spread out over the whole term making the monthly payments basically the same each month. These are very predictable real estate loans and often considered some of the safest mortgages. The terms can vary and can be anywhere in the range of 5, 10, 15, 20, 30, or even 40 years long.
Adjustable Rate Mortgages
Adjustable rate mortgages (ARMs) are popular because they often terrifically low interest rates, at the beginning. The initial period can last from one to ten years, but after it is over the interest rate is allowed to rise and fall based on certain market indexes.
These loans can be very helpful for getting first-time home buyers and those with poor income or credit into the real estate market, but the danger lies in the adjusting rate period. Without a constant rate it can be very difficult to know how much the monthly payment will be which means it can be hard to plan out in advance how much will be needed.
And sometimes the rates can really skyrocket making the payments unaffordable for some real estate buyers. These debts are best if buyers refinance before the introductory rate period is over or for those who are very financially savvy.
Balloon Real Estate Loans
Balloon loans act like fixed rate loans, for a period. During the 10, or 15 year term, the interest rate and payments are relatively low, but at the end of the period, the entire remaining balance is due in full. This might seem like a very impossible debt to repay, but they are really designed to be refinanced before the balloon payment comes due. The advantage is in the relatively low rates and payments.
Jumbo Loans
For those buying real estate in the pricier parts of the country, a jumbo loan will typically be required to cover the cost of the purchase. Conventional limits are set by Fannie Mae and the limit is the largest loan amount that Fannie and Freddie Mac will guarantee.
Because most lenders want the reassurance of these conventional loans, they charge higher interest rates for loans that are not backed by the government-sponsored agencies. That is the basic difference between jumbo and conventional real estate mortgages, although income and asset requirements are typically higher as well.
Owning your own piece of real estate whether as your residence or for investment purposes can be an exciting venture. Getting the best mortgage loan for your purposes can help make the journey much smoother.
