Generally, people go for mortgage loans when they are buying assets like a home. As they can get better consideration by mortgaging their properties. Home loans and mortgage loan are often misunderstood as one and the same but there is a difference between these two loans. Here are different Types of Mortgage Loans by FinanceShed.
Fixed Rate Mortgage Loans
Fixed rate mortgage loans are the most common type of mortgage loans available in the market. The biggest advantage of this loan is that you can easily predict your monthly outflows as regards to interest and principal. This loan typically ranges from 15 to 30 years but shorter loans are also available. The term period of loans defines the rate of interest payable by the borrower where shorter the tenure of the loan, lower the rate of interest. This means that you will pay lowest mortgage interest rates in lower duration loan than higher one and also the risk of non-payment is less in shorter duration. The drawback here is that you will probably end up paying when going for a long term loan with fixed interest. It takes longer to build equity in your home and the better part here is that your monthly principal and interest payments stay the same throughout the life of the loan so that you can plan your expenses accordingly.
Adjustable Rate Mortgage Loans
The interest rates on adjustable mortgage loans fluctuate depending upon certain conditions. This change depends on the kind of loan taken by you. Unlike fixed interest mortgage loans, adjustable rate loans are less likely and popular in many countries like the U.S. and India. The interest rates depend on the market conditions and as the rate goes down homeowners take advantage of that without refinancing. But on the other hand, if the interest rate goes higher then one has to pay huge payments which are even higher than fixed interest loan. The different types of adjustable rate loans are variable rate loans, hybrid loans, and option ARM loans.
If you have a home and does have the equity built up on it you can take a second mortgage loan. This loan is also called home equity loan. This is just a kind of loan secured by the equity in your home and which uses your home as collateral similar to loan you have taken for your home. The equity can change when you make monthly payments on your loan. The other way the equity of your home changes is the gain it has because of the changes in the real estate market.
Government Insured Mortgage Loans
The U.S. government helps Americans to become homeowners. Three government agencies help them to back their loans such as the Federal Housing Administration, U.S. Department of Agriculture and the U.S. Department of Veterans Affairs. These are again of two types FHA and VA. FHA helps the homeowners to take loan who do not have a large down payment for taking the loan. VA loans, on the other hand, provide low-interest mortgage loans and also do not require any down payment. A processing fees or say funding fees are charged on this VA loans as a fixed percentage of a loan amount.