When you are able to approve for a loan, it's time to start shopping for a loan. Always remember that how you pay your mortgage is the most important thing when making a final decision. There are different types of loans and different payment options. You need to know your options so you know what will work best for you.
One of your payment options is an Amortized Loan. An amortized loan is the most common type of loan. With this loan, each one of your monthly payments covers your principle and interest. At the end of your loan term, your interest will be completely paid.
You can also do bi-weekly payments. With this option, you would make payments once every two weeks. That doubles your payments a year, and brings down your principle a lot faster. By doing that, you take years off of your 30yr fixed rate mortgage. That saves thousands of dollars in interest.
As always, you can make extra payments. If you can afford extra payments, it is a very good idea to do so. When you make an extra payment, you must make sure you note on your check "PRINCIPLE ONLY." Knocking down your principle lowers your interest.
Types Of Loans
One type of loan is a fixed rate mortgage (FRM). The rate you origionally recieve will remain the same amount on each payment. These payments are completely amortized. That means payments are made over the full length of your 30yr fixed mortgage.
There is also an adjustable rate mortgage (ARM). These payments can change from month to month or year to year depending on your loan. Some ARM loans are a fixed rate for a certain amount of time before changing. After that, it becomes an ARM with fluctuating payments. There is a cap with an ARM. Meaning even if it fluctuates, your interest rate or mortgage can only go up so high.
The fluctuating payments can be very difficult for some borrowers. What makes ARMs attractive is that the interest rate is usually lower than FRMs. In my opinion, ARMs are only good for home owners that plan on not staying, or buying a property to flip and sale quickly.
With ARMs, you can choose how you would like to pay. You can do interest only payments, or amortized payments (principle and interest paid every month).
You need to know how each type of payment can affect the total amount you owe on your loan.
Interest Only Loans offer a certain period of time to only make interest only payments. Most interest only loans are adjustable. That means your payments can change during that period.
When the interest only payment period is over, you have to start paying on the principle part of your mortgage. You usually have 3 options to do that. One way is to pay it in full. Second, began to start making monthly principle payments. Third, you can refinance.
Interest only payment plans are viewed as being risky. Even though your monthly interest payments decrease, at the end of the interest only period, your principle payments are higher.
You also have Balloon Mortgages. Balloon mortgages requires that you pay the full remaining amount of the loan after a certain amount of time. That is usually between 5-7yrs. If you do not have a guarantee you will have that type of money in that amount a time, STAY AWAY FROM THIS LOAN!!
Ballon payments are attractive because of the low down payment and lower interest rates. They can be helpful for someone that plans on not staying in their home for long, and want to sell quickly.
This blog entry was just an overview of different loan options and loan payments. Hopefully I was able to give you a starting point when you began shopping for you loan. As always, shop around with different lenders and see can they can offer something that fits YOU.
If you need suggestions on where to go for lenders, send me a message.