If you are interested in purchasing a home, there are several loan options that you might choose to explore. Understanding the various types of mortgage loan options available is essential, particularly if you are planning to refinance your home in order to avoid foreclosure or you are taking out a loan in order to invest in a property. While there are literally dozens of different mortgage loan options available, here is a look at the main types of loans available to home buyers.
Fixed Rate Mortgage Loans
The most common loan for homebuyers is the fixed rate mortgage loan. With the fixed rate mortgage loan, you pay a fixed interest rate for the lifetime of the loan. There are many different variations and terms that can be associated with a fixed rate mortgage loan, but all of these variations involve paying back the loan over a fixed number of years. Some of the most common payback terms associated with fixed rate mortgage loans are 10, 15, 20, 30, 40 and 50 years.
For those who wish to refinance a loan in order to avoid foreclosure, a fixed rate mortgage loan may be the answer. By refinancing the loan for a longer term, you can reduce the payments owed each month in order to make the house payment more affordable. Of course, this will increase the amount of time it takes to pay off the loan and you will ultimately pay more in interest by taking this route. Therefore, it is important to weigh the pros and cons before determining if this is the right answer for you.
Interest Only Mortgage Loans
With interest only mortgage loans you can choose to make payments toward only the interest portion of your loan. This option is only available for a set amount of time, however, and you will still be ultimately responsible for paying off the loan in its entirety. If you are purchasing a home as an investment, this can be a good option because it will keep your monthly payments low until the time comes to sell the home.
Option Adjustable Rate Mortgage (ARM) Loans
Optional Adjustable Rate Mortgage, or ARM, loans are characterized by interest rates that change throughout the lifetime of the loan. With ARM loans, you can select from a variety of different payment options. This is a good option for those who are not concerned having a set monthly payment amount every month for the lifetime of the loan.
Combo/Piggyback Mortgage Loans
Combo/Piggyback mortgage loans are designed to help those who need money to pay for their down payments, as this type of loan allows you to take out one loan for the down payment and one for the remainder of the purchase amount.
