For most of us, owning a home, of one’s own, is an essential part, of what we refer to, as, the American Dream! However, for many, this requires, depending, on securing, a mortgage loan, in order to afford, this purchase. After, more than 15 years, as a Real Estate Licensed Salesperson, in the State of New York, I generally, take the opportunity, to discuss, with potential clients/ buyers, some of the options, at the onset, of this process! Basically, there are, at least, four types, of mortgages, often, available, depending on an individual’s needs, qualifications, finances, comfort zone, etc. With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, these, and explain, their differences, as well as some of their potential advantages, and disadvantages.
1. Balloon: At times, one’s personal circumstances, indicate, considering a balloon loan. This type of loan, generally, is for a relatively, shorter – period (often, between, 5 to 7 years), requires, very little, down – payment (other than fees, etc), and, a somewhat – affordable, monthly payment. However, at the end of the period, the borrower must, either, refinance, repay the balance, or sell the home! You probably, therefore, recognize, both, the advantages (in the short – term), as well as, the potential, longer – term considerations/ ramifications!
2. Adjustable: Many homeowners take advantage of an Adjustable – Term mortgage, for a variety of reasons. Often, the interest rate, etc, is lower, and, thus, more affordable, than for a more conventional, type of loan! Because of this, some might qualify, because many loans, are based on, the total of the monthly payments. However, it must be recognized, these terms and rates, change, from time – to – time, at regularly – scheduled intervals, and dependent – upon, the underlying, overall, interest costs, might, increase, sometimes, by a significant amount!
3. 15 – Year Conventional: A Conventional Mortgage, is one, which, has the same, monthly payments, for the term of the loan. The only things, which change, are the allocations paid, into – escrow, for items, such as real estate taxes, insurance, etc! Usually, the shorter, the term, the lower, the rate, paid, but, also, this creates, since, the pay – back, period, is shorter, a higher installment – payment!
4. 30 – Year Conventional: Usually, Conventional Mortgages, are available, in a variety of time periods, but, the 30 – year, type, are generally, most, in – demand. Since, nearly, all mortgages, no longer, have prepayment – penalties, those, seeking to pay back, in a shorter – term, increase, their monthly payment, but, have the flexibility, to pay, the regular amount, when it makes the most sense, for them. Obviously, since, the principal, is repaid, over a longer – period, monthly payments, are reduced, but, often, lenders charge, slightly, lower rates, for shorter – term, loans.
I will always tell you what you need to know, not just what you want to hear (TM). This trademark, which I am proud to lead, my professional conversations/ interactions, directs me, to ensure my clients, are knowledgable, and informed!