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In the past lenders have signed all kinds of crazy mortgages, but lenders have returned to a few basic mortgage types since the financial crisis of 2008. If you’re interested in getting a mortgage you’ll probably have to take one of the following mortgage types:
Fixed-rate mortgages
Fixed-rate mortgages are the most common. If you get a fixed-rate mortgage your interest rate will remain the same for the entire duration of your loan and your monthly payments will also remain the same throughout the duration of your mortgage. With this type of loan, your first few(or several, depending on the terms) payments actually go mostly towards interest, with later payments focusing on the principle of the loan.
A fixed-rate mortgage can last 10, 15, 20, or 30 years. Most people choose 30-year mortgages because these offer the lowest payments.
Adjustable-rate mortgage
An adjustable-rate mortgage is exactly what it sounds like: a mortgage with an adjustable interest rate. These loans are less common, and recent years have seen more hybrid mortgages. These mortgages offer a fixed rate for three, five, or seven years and then adjust the interest rate annually. Most hybrid mortgages also come with a cap of how many times the mortgage can be adjusted.
Every company uses a slightly different formula for adjusting their rates, so make sure to ask how your new interest rate will be calculated each year before you sign up for an adjustable-rate mortgage.
Interest-only jumbo loan
You do also have the option of paying only the interest for the first few years of your mortgage. This is usually only used when taking out a jumbo loan. In the most expensive housing markets across America, these jumbo loans purchase houses that cost $625,000 or more.
These loans are structured in much the same way as most adjustable-rate mortgages: you pay only interest for the first five, seven, or ten years, and after that, you pay both the principal and the interest, with the interest adjusting annually.
The Bottom Line
Make sure you speak to a mortgage expert about the best options for you before you choose a mortgage and that you have a real estate lawyer look at any contract before you actually sign it. There are many companies looking to take advantage of people who simply want a beautiful home. Don’t let them get the better of you.
