Bunga - Types of Home Mortgage Loans

Have you decided to buy a new home but don't know which home loan to apply for? Help is right here. A home mortgage loan could be what you are looking for. There are different types of home mortgage loans you can choose from and find the one that would best suit your needs. It is essential to first know what a mortgage loan is. It is a type of loan that is secured against a property for the repayment of the loan. A home mortgage loan is offered when buying a home. Mainly, they are of two types - conventional and government home mortgage loans.

Conventional Home Mortgage Loans

Conventional home mortgage loans are given to buyers by mortgage companies, lenders and banks. Their rates of interest depend upon the market trend. They are of the following types:

Fixed-rate mortgage loan: As the name suggests, in this type of a loan the rate of interest does not change. The mortgage payment to be made on a monthly basis remains fixed for the period of the loan and does not vary with the market rate. Hence if you signed up for the loan at a low rate of interest, it remains so even if the market interest rates increase during the period of the loan. A fixed-rate mortgage loan can last anywhere between 10 - 40 years. If you are a first time home buyer, then this could be an ideal loan for you. However, if you sign up for the loan at a time when the interest rates in the market are high, this could be a disadvantage. This loan offers less risk and more stability.

Adjustable-rate mortgage loan: This type of mortgage loan offers a fixed rate of interest initially and later moves on to adjustable rates depending upon the interest rates that the markets experience. It usually starts off with a low rate of interest compared to that on a fixed-rate loan in the introduction period. However the rate of interest during the adjustable period is uncertain, which is a disadvantage. This, being an unstable type of loan, can involve lot of risks. Those looking for short-term deals can benefit from this loan.

Balloon loans: This loan is offered on a fixed-rate basis for a short term, usually around 7 - 10 years at the end of which the amount has to be paid in a lump sum. They are based on an amortization schedule of 30 years. The rate of interest for the term is as low as that of the adjustable-rate mortgage loan. It is easy to qualify for this loan, so people with low or poor credits find it very appealing as it gives them time to reorder their credits. Payment of the lump sum amount is a downside to this loan. At the end of the term you are left with two options - you either pay off the amount or try qualifying for another home mortgage loan.

Bridge home mortgage loan: This loan can be availed if you have zeroed down on the new home you want to buy but haven't sold your current home yet. The bank or the mortgage firm uses your current home as a security against the loan being offered.

Home equity mortgage loans: The home equity mortgage loan allows the borrower to draw funds or cash from the equity in the home or a property. It can be either a fixed or an adjustable loan.

Government Home Mortgage Loans

Government home mortgage loans are guaranteed, insured loans targeting specific groups of people who are looking to own a home. They are channelized through private organizations but rely on the government for sponsorship.

FHA home mortgage loans: This is a type of home mortgage loan program initiated by the government-run Federal Housing Authority (FHA). The purpose of this program was to help more people qualify for housing mortgage loans after the Great Depression. Their interest rates are lower than any of the conventional home mortgage loans and the down payments are lower too. They are easy to qualify for. In case you intend to sell your home before the term of the loan ends, the person buying your home can take over the FHA home mortgage loan.

VA home mortgage loans: This type of loan is offered specifically to government employees, service men and service women by the US department of Veteran Affairs. They are offered smaller down payments and better terms on fixed-rate and adjustable home mortgage loans. They are also guaranteed, which means that in case of default on payments by the borrower, the private lender shall be repaid.

Rural housing services (RHS) loan program: This loan program is offered by the US Department of Agriculture. Loans for rural residents is guaranteed by the government without any down payment.

Availing a home loan is an important aspect of home buying. Hopefully this information on types of home mortgage loans would help you choose the loan you are looking for, which would mean taking a step further in purchasing your dream home.

By Dhanya Joy

Source : Types of Home Mortgage Loans