For most of us, owning a home of one’s own is an essential part of what we refer to as the American Dream! However, for many, this requires, depending on securing, a mortgage loan to afford this purchase. After more than 15 years as a Real Estate Licensed Salesperson in the State of New York, I generally take the opportunity to discuss, with potential clients/ buyers, some of the options, at the onset, of this process! There are at least four types of mortgages often available, depending on an individual’s needs, qualifications, finances, comfort zone, etc. With that in mind, this article will attempt to examine, review, and discuss these and explain their differences, as well as some potential advantages and disadvantages.
1. Balloon: At times, one’s circumstances indicate considering a balloon loan. This type of loan, generally, is for a relatively shorter – period (often between 5 to 7 years), requires very little down – payment (other than fees, etc.), and a somewhat – affordable monthly payment. However, at the end of the period, the borrower must refinance, repay the balance, or sell the home! You probably, therefore, recognize both the advantages (in the short – term), as well as the potential, longer-term considerations/ ramifications!
2. Adjustable: Many homeowners take advantage of an Adjustable – Term mortgage for various reasons. Often, the interest rate is lower and, thus, more affordable than a conventional type of loan! Because of this, some might qualify because many loans are based on the total monthly payments. However, it must be recognized that these terms and rates change from time – to – time, at regularly – scheduled intervals, and are dependent – upon the underlying overall interest costs, which might, sometimes, be a significant amount!
3. 15 – Year Conventional: A Conventional Mortgage has duplicate monthly payments for the term of the loan. The only things that change are the allocations paid into – escrow for items, such as real estate taxes, insurance, etc.! Usually, the shorter the term, the lower the rate paid, but this also creates, since the payback, the period is faster, a higher installment – payment!
4. 30 – Year Conventional: Usually, Conventional Mortgages are available for various periods, but the 30 – year type is generally most in-demand. Since nearly all mortgages no longer have prepayment – penalties, those seeking to pay back, in a shorter – term, increase their monthly payment but have the flexibility to pay the average amount when it makes the most sense. Since the principal is repaid over a more extended – period, monthly payments are reduced, but, often, lenders charge slightly lower rates for shorter-term loans.
I will always tell you what you need to know, not just what you want to hear (TM). This trademark, which I am proud to lead, my professional conversations/ interactions, directs me to ensure my clients are knowledgeable and informed!