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[N331]Non Conforming Mortgage Loans

by Ricky Lim, Ric

I will discuss the 3 main types of mortgage loans on the market. Most banks and lenders offer mortgage loans that belong to one of these categories.

1. Fixed Mortgage Loan

Fixed mortgage loans are the most popular and common among the three types of mortgage loan.

You take out a mortgage loan with a lender and you pay a certain repayment amount for a fixed period of time. Most people usually choose 30 year fixed mortgage loans as the monthly repayment amounts are low and the interest rates usually evens out in a 30 year period.

One disadvantage of 30 year fixed mortgage loan is you have to repay more for your mortgage loan in total compared to someone who takes up a 15 or 5 year loan.

There are also shorter time periods such as 5 year, 10 or 15 years fixed mortgage loans. It allows people who want to pay off their house in a shorter period of time. Of course, you have to make sure you have the financial capability to repay higher monthly repayments.

There is also another sub-category of mortgage loan called adjustable rate mortgage loan or ARM. Usually, you will start off with a lower interest rate compared to a 30 year fixed mortgage loan. So you ended up paying less each month for your mortgage repayment.

However take note that ARM is highly fluctuating depending on interest rates. In other words, you pay less for monthly repayment when interest is low and pay more when interest rates is high.

2. Convertible Loans

Convertible loans are becoming more popular as it allows people to keep their mortgage loan options open allowing for more flexibility.

If you find interest rates are too high, you can convert to a fixed rate mortgage loan. If interest rates are low, you can also convert to ARM based mortgage loans.

There are too many varieties of convertible loans under this category. However I list one type of convertible loans I dealt with.

Balloon Loan

A balloon loan is a fixed rate convertible loan. Usually, you start off by repaying small monthly repayments for a period of years, usually 5 or 7 years. At the end of that period, you will need to repay the loan in one lump sum.

So what's the advantage of a balloon loan? It is mostly used by investors or property dealers who are looking to sell the house in a short period of time. They can take advantage of low interest rates without locking their money on a house. Since they will have a large sum of money when they sell the house, it will not be a problem to return the lump sum.

3. Special mortgage loans

These are mortgage loans that are only being offered to a group of people. For example the FHA mortgage loans are only available for first time home buyers or people with bad credit.

Another one is the veteran affairs mortgage loan. They are only offered to widows of the US armed forces.

The best way to know whether you qualify or is suitable for a mortgage loan is to speak to a professional mortgage consultant before you decide to take up any mortgage offer

Taking out a mortgage loan is typically the largest amount of money any one person will borrow in their entire life. Buying a home is an investment. You want to make sure that you are making a smart investment. There are a lot of mortgage options, some more common than others. If you plan to buy a home, you will want to know about the most common types of mortgage loans available.
The fixed rate mortgage loan is perhaps the most well known mortgage option. When interest rates are low, it is a good idea to get a fixed rate mortgage and lock in the interest rate. Whatever interest rate you get with your mortgage will stay with you unless you refinance the house. The amortization schedule with a fixed rate mortgage will stay the same throughout the term of the loan.
Most fixed rate mortgages have a term of thirty years, but amortization schedules can range anywhere from ten year terms to forty year terms. The shorter the term, the lower the interest rate usually. The longer the term, the more expensive the loan will be by the end of the term since you are paying interest for longer.
If you hope to pay off your home as soon as possible, then getting a loan with as short of a term as possible might be wise. The shorter the term, the less interest you will pay on the loan over time. You can get a fixed rate mortgage with a term as short as ten years. In some cases, you can get a term as long as fifty years. The most common length of term is a thirty year term.
An adjustable rate mortgage is another common mortgage. They have become more popular over the past several years. Some buyers grossly misunderstand the ARM (adjustable rate mortgage) loan. The main thing to be aware of with this type of loan is that you need to expect that your monthly mortgage will change over time.
Interest only loans are mortgage loans that are commonly used for people using real estate as an investment. With this loan, the payments you make each month are only paid on the interest of the loan. If you were using the property as an investment and can find renters to pay the mortgage on the home, then you can make money selling the home years later when it has appreciated in value.
There are many more types of mortgages to choose from. But the most common mortgages today are the fixed rate mortgage, the adjustable rate mortgage, and the interest only mortgage. One of them might be right for you.

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Both Ricky Lim & Trinity Clawson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Ricky Lim has sinced written about articles on various topics from Acid Reflux, College Student Loan and Coffee Advantages. Ricky Lim works in a finance company specialising in . Visit his site to find the. Ricky Lim's top article generates over 27100 views. to your Favourites.

Trinity Clawson has sinced written about articles on various topics from Finances. Trinity provides information about getting and. Trinity Clawson's top article generates over 590 views. to your Favourites.