Different types of loan programs part 2

Fixed Rate Mortgages: With fixed rate mortgages the interest rate and monthly payment remains fixed for the life of the loan. Fixed rate mortgages are generally available for 10, 15, 20, 25, 30, 40 and 50 year terms. In most cases the shorter the term the lower the interest rate. The most popular are the 30 and 15 year terms. Your monthly payments are lower with a 30 year term then they would be with a 15 year. But if you can afford the higher payments with a 15 year fixed-rate mortgage you have the benefit of repaying your loan twice as fast and will save you more than half the total interest cost of the 30 year loan.

Bottom line: These traditional loans generally carry a higher interest rate than an ARM or Balloon mortgage, but they are a great loan choice if you are looking for steady payments and long term stability.

Balloons: These are short term fixed rate loans, similar to an ARM they have a fixed term usually for 3, 5 and 7 years, monthly payments are usually based on a 30-year fully amortized schedule. With a Balloon, at the end of the fixed term a lump sum payment of the remaining loan amount is due. The benefit of this loan is that the interest rate is generally lower than a 30 or 15 year fixed rate, resulting in lower monthly payments. There are Balloons loans with refinancing options available, which allow the borrower to convert the mortgage at the end of the balloon period to a fixed rate loan, if certain conditions are met (which can vary depending on the lender).

Bottom line: Also a good choice for investment properties, or short term loans. Lower rates than a fixed, but the downside is that at the end of the term you will have to come up with a lump sum to pay off the lender, either through a refinance, from your savings or from the sale of the property.

HELOC (Home Equity Line Of Credit): Usually these are 2nd Mortgages and have a lower maximum loan amount. A line of credit will have terms such as: a term of 25 years, the first 10 years you can withdraw and pay back as much of the loan amount as you wish, the last 15 years of the loan is just a repayment period.

Bottom line: A HELOC usually has great rates compared to traditional second mortgages. Because of the flexibility during the first 10 years they are often used for home improvement.


~More loan programs will be covered in an up coming article~

If you would like to know more regarding any loan type, whether I have discussed it here or not, please email me your questions.
HannahPadilla@aol.com