For most of us, home ownership is an integral part of what we call the American Dream! However, for many, depending on the security, this requires a mortgage loan to be able to afford this purchase. Having been a licensed real estate salesman in New York State for over 15 years, I generally take the opportunity to discuss with prospective clients/buyers some of the options at the beginning of this process! Basically, there are at least four types of mortgages that are often available depending on a person’s needs, qualifications, finances, comfort zone, etc. With that in mind, this article will attempt to briefly consider, examine, review and discuss these, explaining their differences and some of their potential advantages and disadvantages.
1. Balloon: Sometimes personal circumstances also speak in favor of considering a balloon loan. This type of loan is generally for a relatively shorter period of time (often between 5 and 7 years), requires very little down payment (other than fees etc.) and is a somewhat affordable monthly payment. However, at the end of the period, the borrower must either refinance, pay off the balance, or sell the home! So you probably see both the benefits (short term) and the potential longer term considerations/impact!
2. Adjustable: Many homeowners use an adjustable-term mortgage for a variety of reasons. The interest rate etc. is often lower and therefore cheaper than with a more conventional type of loan! Because of this, some might qualify, as many loans are based on total monthly payments. However, it must be recognized that these terms and interest rates change at regular – scheduled intervals from time to time and depending on the overall underlying interest cost can sometimes increase by a significant amount!
3. 15 – Years Conventional: A traditional mortgage is one that has equal monthly payments for the life of the loan. The only things that change are the allocations put into escrow for items like property taxes, insurance, etc! As a rule, the shorter the term, the lower the installment, but this also results in higher installment payments, since the amortization period is shorter!
4. 30 years Conventional: Traditional mortgages tend to be available in a variety of time periods, but the 30-year type is generally the most sought-after. With almost all mortgages no longer having prepayment penalties, those looking to pay off a shorter term are increasing their monthly payments but have the flexibility to pay the regular amount when it makes the most sense for them. Of course, as the principal is repaid over a longer period of time, monthly payments are reduced, but often lenders charge slightly lower interest rates for shorter-term loans.
I will always tell you what you need to know, not just what you want to hear (TM). This hallmark I proudly maintain, my professional conversations/interactions, guides me to ensure my clients are knowledgeable and informed!