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6 Types of Mortgages Explained

6 Types of Mortgages Explained

Today, there are all kinds of mortgages available to meet the requirements of borrowers with different needs and backgrounds. After all, not every borrower and home buyer is the same.

It is essential to choose the type of mortgage very carefully. You have to understand all of your options before selecting since the right kind of mortgage can help you in the future.

To help you, here are all kinds of mortgages that you can choose from.

Fixed-Rate Mortgages

Fixed-Rate mortgages are probably the most popular type of mortgage. After all, you can lock the interest rate, and throughout your mortgage, the price will not change.

Fixed rate mortgages are very popular with first-time buyers since people like to know how much money they’ll be paying every month. You won’t even have to worry about any price fluctuations.

Conventional Mortgages

Conventional mortgages are also called conforming mortgages. The federal government doesn’t ensure a conventional mortgage. What does this mean? It means that there is no guarantee for the lender when the borrower defaults his or her mortgage payments. That is why the lenders who can take higher risks are considering this type of mortgage.

Because of this, borrowers should have a high credit score, low-debt-to-income ratio, and healthy financial history, so there is a high chance of approval for this type of mortgage. Take note of that if you want to try getting a conventional mortgage.

Interest-Only Mortgages

Other times, borrowers only choose an interest-only mortgage to have the lowest possible payment. If a monthly mortgage only has the ‘interest,’ it is considered an interest online. However, this type only lasts for a period, mostly around 5 to 10 years. If they want, the borrowers can pay more than the indicated interest. There’s no principle portion so the only way equity can increase during the period is via appreciation.

Adjustable-Rate Mortgages

Compared to fixed-rate mortgages, adjustable-rate mortgages have an interest that goes up and down depending on the market. It usually starts low and then adjusts as time passes by. Throughout the mortgage, the rate will change.

FHA Loans

If you can’t meet the requirements for a conventional loan, there are the FHA loans. These are government-backed and guaranteed by the Federal Housing Administration thus the FHA. It often gets the attention of borrowers and first-time buyers with a credit that is less than perfect. FHA loans have easier lending requirements and attractive features.  If you’re from Texas, there’s the Fha Loans Midland Texas just for you.

Home Equity Loans

Lastly, there’s the home equity loans or second mortgages. This type allows homeowners to borrow an amount that is against the equity that’s built up in the home. If you are in need of a loan to help cover an enormous expense, this can be for you. Homeowners usually can borrow around $100,000 of equity.

Also, read 5 things you need to know before taking out a home equity loan.

You can choose from two types of home equity loans. There’s the lines of credit and fixed-rate loans. These variations both range around 5 to 15 years and should be repaid by the time the home is sold.

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