While buying a new house, a mortgage is the first thought that hits people’s minds. It makes the purchasing process much more convenient by providing the funds without hassle. However, it will help if you explore all kinds of mortgage options before deciding. Only then will you be able to make the most out of your loan. Here are the five types of mortgages that you can find in the market. Learn more about them and see which one fits best in your requirements.
#1 Conventional Mortgages
These are the standard mortgage loans that you can use to buy your primary or secondary home. They can also be used for property investment purposes. In case you fail to pay at least 20 percent of the property’s total price, you will have to provide your lender with private mortgage insurance. The benefit here is that you can get the insurance back once you pay the loan and cover the bar of 20 percent equity. Moreover, you need to pay lower borrowing costs in this as compared to the other mortgages. However, you must check with your debt-to-income ratio before opting for a conventional mortgage because it requires a high DTI value.
#2 Fixed-Rate Mortgages
As the name depicts, these loans come with a fixed rate of interest. Therefore, you need not worry about the market’s movement, as your repayment amount will always remain the same. This mortgage is beneficial if you prefer to keep your finances pre-planned. It won’t affect your plans. Plus, there is no risk of the rates going high. You can opt for a 15, 20, or 30-year tenure for the loan as per your convenience. The EMIs will get affected accordingly. Remember, the longer the term, the lesser the amount. However, you will remain in debt for longer in this case.
#3 Adjustable-Rate Mortgages
These are exactly the opposite of fixed-rate mortgages. Here, your loan’s interest rates can go significantly up or down based on the market fluctuations. This loan type offers a fixed lower interest rate in the first few years of the term. So you can enjoy this benefit. If you get lucky enough, your interest rates will further reduce after the period, and you can enjoy lower repayment amounts throughout the tenure. But remember that you can’t pre-plan your finances in this loan because the EMI amount will get changed in the future.
#4 Government-Backed Mortgages
In case you can’t qualify for the conventional or other kinds of mortgage, this will be your go-to option. These mortgages are backed by the government authorities. That is why they have much more lenient eligibility criteria. They also offer various benefits compared to other mortgage options, such as lower down payments and interest rates. However, these mortgages have a higher borrowing cost. So you must consider that before getting it.
#5 Jumbo Mortgages
When you wish to buy your home in a premium locality or want some additional amenities with it, jumbo mortgages are what you need. These have higher borrowable amounts compared to any other kind of mortgage. So you can easily purchase your dream home with its help. The mortgage loan interest rates are also competitive here. This means you need not worry about paying higher interest rates under the loan. But if you want to borrow a more significant amount, you will have to get through strict eligibility criteria. Check with your lender about their jumbo mortgage requirements, and only consider this if you qualify for it.
These were the common five types of mortgages you can find in the market. Based on the amount you want, the loan eligibility criteria, and your preferences, you can pick any of these.