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1. Fixed Rate Mortgages
Fixed Rate Mortgages have a set
interest rate that does not change over the life of
the loan. This means a borrower's monthly principal
and interest payment is fixed for the next 30 years or
however long the borrower keeps the loan. If interest
rates are expected to increase in the future, a fixed
rate mortgage
may be a borrower's best option.
2. Adjustable Rate
Mortgages (ARM's)
Adjustable Rate Mortgages
(ARM's) are linked to an index and change as the index
rate
changes. A 5 year ARM,
for example, starts as a fixed rate loan and then converts
to an adjustable rate after 5 years.
Adjustable
rate
loans have more risk due to the possibility that the
interest rate could increase. However, because a borrower
is assuming some of the risk, the lender will generally
reward
the borrower with a lower interest rate. These loans
are of particular benefit to borrowers who plan to
sell their property before reaching
the adjustable period. If a borrower knows for sure
that he or she will not be in a particular property
for more than
a few
years,
an adjustable rate mortgage may be worth considering.
We recommend being very cautious when considering
an ARM however.
3. Interest
Only Mortgages
Interest Only Mortgages are a good means of either increasing home purchasing
power or maximizing a borrower's flexibility to control cash flow. A borrower
can
save significant amounts of cash for investment, savings, or other expenditures
during
the first
ten years of the loan. If a borrower has a high amount of credit card or
other consumer debt, it may make sense to pay down the higher interest rate debt
first
and then
start working on the house. With these loans, the minimum payment required covers
interest only. The borrower decides how much, if any, of the principal to
repay
each
month.
4. Reverse Mortgage
A reverse mortgage is a special type of loan used to convert the equity in a
home
into
cash, usually paid out in monthly installments over time.
The
money obtained is often used to provide senior citizens
with
financial
security in their retirement years. To qualify for a reverse mortgage in the
United States, the borrower must be at least 62 years of age. Once the reverse
mortgage is put in place, there are no restrictions on how the funds are used.
A reverse mortgage is a good option for an elderly person with little monthly
income
but a significant amount of equity in a home.
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