The housing industry in America is going through what feels like a rough time, when actually the sub-prime market and the once-buzzing housing market are going through adjustments to more normal levels of activity. Mortgage lenders are tightening requirements for loans to risky customers, who they fear will not be able to square up their loans. However, if you are a safe borrower, you can easily get a loan for purchasing your dream home or refinancing your current mortgage, and still get a great rate of interest. But how do you decide which mortgage works best for you? Here is a quick overview on the various mortgage products available in the market. Mortgage Products Available From Private Financial Institutions
1. Fixed (Interest) Rate Mortgage: A fixed-rate mortgage guarantees a stable rate of interest, which means the interest rate does not fluctuate depending on the state of the economy and the policies of the Federal Reserve - it remains fixed. These types of loans are ideal for people who are averse to market risks- they don't want to see the interest rate go up and spoil the party, and they don't mind the interest rate going down, too. All because they have planned their loan repayments and do not want the schedules to go awry. While taking a fixed-rate mortgage, you must remember that you will have to pay more interest for long-term loans, but the interest will fetch you tax deductions, and you can easily qualify for a long- term mortgage. Medium-term and short-term mortgages will require you to pay a lesser amount of interest, but you will not get correspondingly huge tax benefits.
2. Adjustable (Interest) Rate Mortgage (ARM): Unlike a fixed- rate mortgage, the interest in the adjustable-rate mortgage fluctuates depending upon market conditions and the Federal Reserve's policies. This type of loan is ideal for short-term borrowers. Long- term borrowers might want to avoid these types of loans, as every hike in the interest rate will keep giving them sleepless nights. And, remember, in times of inflation, every rate hike leads to an increase in the loan repayment period. Some ARM loans offer the borrower an initial period guarantee during which the interest rate will remain unchanged - for example, a 5/1 ARM loan means that for the first 5 years of the loan, the rate of interest will remain unchanged, and then adjust every year beginning from the sixth year, and so on.
3. Balloon Repayment Loans: These loans were originally designed for businessmen who can repay them by making a lump sum payment (that leads to the closure of the loan) after paying installments for an initial period. These loans are usually short-term in nature.
Mortgage Loans Available From The Government
1. Federal Housing Administration (FHA) Mortgage: FHA loans are great for first time buyers, allowing individuals to finance up to 97 percent of their home loan which helps to keep closing costs at a minimum. It is not necessary to meet a minimum income requirement in order to qualify for a FHA loan but debt ratios specific to the state where the home is located are put into place to ensure buyers only buy homes that they can afford.
2. Veteran Affairs (VA) Loan: Qualified veterans and active duty military can obtain a loan of up to $417,000, or $625,500 in high- cost areas, with no money down.
3. Rural Housing Service (RHS) Loan: RHS loans are meant for people in the low- to middle-income bracket who wish to buy a dwelling in a rural or semi-rural area. Like the DVA loans, these loans do not require any down payment, and carry a low rate of interest.
It can be overwhelming to know which mortgage product to pick. Mortgage brokers have access to hundreds of lenders and mortgage products, which allows them to shop lenders so that you can pick the mortgage that is best suited for your needs.