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In our country, the fixed rate mortgage is the most common choice. A fixed rate mortgage allows you to lock in a rate for as long as 30 years. It provides you with a guarantee that the interest rate will not change for the entire duration of the loan. The options you have for number of years in a fixed rate mortgage are 30, 20, 15 and 10. Normally, the longer the term you choose the lower your payment will be. The shorter your term the lower your interest rate will be. Fixed rates provide the security of knowing your payment will always be the same and help with budgeting monthly expenses.
The rate is fixed for a certain time period, then adjusts yearly after that time period. Examples of ARMs are a 3/1, 5/1, 7/1, 10/1 ARMs. The first number is the number of years the rate stays fixed. The second number, normally a number (1), indicates that the rate will change each year after the fixed rate period is complete. ARMs are helpful if you want to get a lower payment than a fixed rate provides. ARMs are typically amortized over a 30 year period.
Administered by the Department of Veterans Affairs, these special loans make housing affordable for U.S. veterans. To qualify you must be a veteran, reservist, on active duty, or a surviving spouse of a veteran with 100% entitlement. A VA loan is simply a fixed-rate mortgage with a very competitive interest rate. Qualified buyers can also use a VA loan to purchase a home with no money down, no cash reserves, no application fee and reduced closing costs. Some states allow a VA loan for refinancing as well. Many lenders are approved to handle VA loans. You can contact your regional VA office to see if you're qualified.
FHA loans are designed to make housing more affordable for first-time homebuyers and those with low to moderate income. FHA mortgage rates can be either fixed or adjustable. They are insured by the Federal Housing Authority(FHA) and allow a homebuyer to purchase or refinance a home with as little as 3.5% down-payment. Monthly mortgage insurance (MI) is paid by the borrower and is included in your monthly payment. FHA loans also allow you to qualify for a loan if your credit is not good enough for a conventional loan. FHA Streamline Refinance loans are great for refinancing to a lower rate without an appraisal of the property.
The Missouri Housing Development Commission (MHDC) provides assistance for down payments on the purchase of a new home to first time homebuyers. Income and credit limitations may apply. These loans are only provided in the state of Missouri. Rates are typically higher than normal FHA rates, but are very helpful if you don't have enough money to pay the normal 3.5% down payment required by a typical FHA loan.
The United States Department of Agriculture (USDA) provides a loan program that allows a home buyer to purchase a home with a loan equal to 100% of the value of the home in a rural area. This loan program is not typically available within city limits. Income and credit limitations may apply. You can check to see if a property address is eligible for a USDA loan at USDA's website search at this link: USDA Address Eligibility Search
Jumbo loans are provided for people who need loans larger than the conforming loan limit of $453,100. The rates can be either fixed or adjustable and are typically higher than conforming or FHA rates.
This program allows homeowners to refinance their current mortgage even though their home may have decreased in value over the past couple of years. It allows people to take advantage of the current low rate market when other conventional loan programs may not be allowed.
A Reverse Mortgage is a loan made available to seniors (Age 62 and over) that does not require a mortgage payment to be made by the borrower for the entire life of the loan. It is federally insured by FHA and can be used as a great tool for retired homeowners who are on a fixed income. For more information on Reverse Mortgages, Click Here.
This type of mortgage offers an interest rate that is lower than current 30 year fixed rates. Payments are amortized over a thirty years, similar to a 30 year fixed mortgage, but the note becomes due after the fixed rate period of either 2, 3, 5, 7, or 10 years. After the 2, 3, 5, 7, or 10, year period is up the note becomes due and payable. In many cases a lender will offer the opportunity to convert to a fixed rate that is slightly higher than market 30 year fixed rates at no cost. This can prevent a borrower from being forced to refinance a mortgage and eliminate any closing costs that are associated with refinancing.
Why would I choose a balloon mortgage? Balloon mortgage can be use for primarily the same reasons as an ARM. They can help you get a lower initial payment and are good for individuals who know they may not being staying in their house for 30 years. A Balloon mortgage does not meet the "Qualified Mortgage" standard set by the federal government.
Home equity loans and 2nd mortgages are essentially the same. They give you the ability to use the equity in your home as cash for other purposes. For Example: Suppose you currently own a home with an appraised value of $100,000 and have a first mortgage of $70,000. Depending on your credit history, you may be eligible to get an additional mortgage (home equity loan or 2nd mortgage) for up to $30,000 ($100,000 Value - $70,000 First Mortgage = $30,000 available equity). Some lenders even offer home equity loans for up to 125% of the value of your home. Keep in mind that if you plan on selling your home in the near future and have mortgages that add up to 100% of the value of your home, your sale will generate very little cash for your use. Interest paid on home equity loans and 2nd mortgage is almost always tax deductible. Repayment terms on these loans may be anywhere between five and 20 years.
Home equity line of credit
This is a credit line established on the equity you have in your home. It offers flexible access to funds, and you only borrow money as you need it. Once a line of credit is established, it is almost always available to be tapped. Over time, you are allowed to pay back a large portion of the loan then draw on it again later when you need it.
Home equity loan
Instead of a line of credit, the home equity loan allows you to borrow one lump sum of money against the equity of your home. If you know that you will only be needing a fixed amount of cash, this may be a good loan for you.
Taking a second mortgage on your home has possible tax advantages and helps you avoid PMI. Even with predictable payments, there are now two monthly payments or possibly two lenders involved.