Thursday, 7 May 2015

Buying or refinancing a home can be one of the largest and most complex financial decisions most of us will ever make.

We can help you with this list that explains the different types of mortgages and refinancing loans.

What are the types of mortgage loans?

Fixed-rate loan: Repayment terms range from 8 to 30 years. The monthly principal and interest rate remain the same for the life of the loan. Most require a down payment, ranging from 5 to 20 percent of the house's purchase price. Fixed-rate mortgages may be a good choice if you:

  • Think interest rates could rise in the next few years
  • Plan to stay in your home for many years
  • Prefer a stable fixed principal/interest payment versus one that changes periodically

Adjustable-rate mortgage (ARM): This is sometimes called a "variable-rate" loan, as the interest rate adjusts periodically (often annually). The initial interest rate is usually low and remains so for a set period (generally 1,3,5,7, or 10 years). After that, the rate adjusts at some defined rate depending on certain factors (index used and margin applied). Adjustable rate loans may be a good choice if you:

  • Think interest rates will fall or remain flat in the future
  • Don't plan to stay in the house for a long time
  • Want lower initial payments

FHA loan:  An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA). Started during the Great Depression, FHA loans historically allowed lower-income Americans who might not otherwise qualify for mortgages to buy homes. They could be a popular option for certain first-time buyers because of their flexibility and less stringent credit terms. The down payment can be as low as 3.5 percent of the house's purchase price.

FHA loans are offered by federally qualified lenders. The FHA charges upfront mortgage insurance premiums as well as annual premiums, and some FHA loans require that these premiums are paid for the life of the loan. There is also a maximum amount that can be borrowed, based on regional guidelines. Check for specific guidelines in your area.

VA home loan: VA Home Loans were designed to help military members, veterans, and eligible surviving spouses become homeowners. Private lenders, like banks and mortgage companies, provide the loans but the Department of Veteran Affairs guarantees them. They are only available to qualified military personnel. While terms will vary, VA loans generally have less stringent credit requirements and require no down payment. While there is no private mortgage insurance for VA loans, the VA charges an upfront guarantee fee which may be financed into the loan amount.

Jumbo loan: A jumbo loan provides larger loan amounts than the maximum limits set by Fannie Mae. (See for specific information on loan limits.) Jumbo loans are available in fixed-rate and adjustable-rate options, and are available for financing on primary residence or vacation homes.

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