Home Mortgage Loans
Buying a home will be, for most people, the biggest financial investment of one's life. Being that 99% of us cannot afford to buy a home outright, we will need to take out a home mortgage loan from a bank or other financial lending institution. There are many mortgage options out there and an inexperienced home buyer can feel quickly overwhelmed when looking at hundreds of thousands of dollars and decades-long commitments. This article should serve as a simplified guide to the different types of home mortgage loans in order to educate the home buyer.
Some of the various kinds of mortgages include Fixed Rate Mortgages, Adjustable Rate Mortgages, Government-Insured Loans, Conventional Mortgage Loans.
Fixed Rate Mortgages carry the exact same interest rate for the entire lifespan of the loan. This means that your monthly payment to the bank will be the exact same every month, year after year. These types of loans are often packaged as 15 year or 30-year loans. A 15-year package will naturally have higher monthly payments than a 30-year package because it must be paid off in less time.
Adjustable Rate Mortgages, or ARM's, are loans whose interest rate is in flux according to the market. Some ARM's remained fixed for a certain number of years and then switch to an adjustable rate, while some ARM's carry an adjustable rate for the initial years and then remain fixed. These are Hybrid ARM's. An example of a Hybrid would be a 5/1 ARM loan where there is a fixed rate for the first five years, after which that rate will adjust every year to the market.
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