Types of Financing for Your Mortgage

When financing a home purchase, the kind of mortgage you choose determines your monthly payment and the interest rate you get on your loan. There are four main ways of financing the mortgage for your home: 30-year fixed rate, 15-year fixed rate, adjustable rate, and interest only. Each of these mortgage financing options has its pros and cons, your credit union can help you find the right financing for your situation.

30-year fixed rate. This is a mortgage that is made as a 30-year loan. The rate is fixed, meaning that the interest rate does not go up or down with fluctuations in the market. And because the interest does not fluctuate, the payments remain fixed as well (although you may have to pay more in property taxes as they increase, or as the home appreciates in value). Most buyers choose this long term financing option because the monthly payments are lower than they would be with a short term loan. The main disadvantage is that the interest rate is often a little higher than it would be for a 15-year loan, and this results in more money paid in interest over the life of the loan. Also, the house gains equity at a slower rate. If interest rates drop, the rate of the loan does not change, but it is usually possible to refinance to the lower rate.

15-year fixed rate. Like the 30-year loan, this rate is also fixed. The main difference is that you pay of the loan in 15 years instead of 30 years. This means that your payments are much higher than they would be if you had a long term loan. However, because you pay it off faster, the home gains equity more rapidly and you save a large amount of money in interest. Additionally, most lenders offer lower interest rates if you opt for a 15-year loan. Your tax deduction for interest will be smaller with a 15-year than with a 30-year, however, because you are paying less interest.

Adjustable rate mortgage. Contrary to the fixed rate mortgage, the adjustable rate mortgage changes when the interest rates changes. Most adjustable rate financing does have a fixed rate and payment for a period at the start of the loan. Depending on the length of the total loan period, this can be anywhere from five to 10 years. However, after the initial period, the rate is variable. This means that you may start out with a very low rate at first, but your rate (and your payments) may increase substantially as the market fluctuates. Because of the nature of the loan (low payments at first), the borrower may qualify for a larger loan than he or she would otherwise qualify for if the rates were fixed.

Interest only loan. This is a loan relatively new to the world of mortgage financing. It is basically a type of adjustable rate mortgage, although a very few lenders offer them at fixed rates. Despite its name, an interest only loan is not exactly that. The borrower pays only the interest payments on the loan for the first five to 10 years (seven to nine years is common). This means that the borrower may be able to qualify for a larger loan. Additionally, someone who might not be able to afford a house payment can do so when he or she is only paying the interest. The downside comes when the initial payment period ends. After the first several years, you begin paying on the principal as well, resulting in a balloon payment. This is a loan that comes with a great deal of risk, especially if you are unsure of whether or not you will earn enough down the road to cover the sudden payment increase.

Again, it is a good idea to consult with your credit union to explore the risks of each option in relation to your circumstance. Contact your credit union about rates, terms and benefits for each of these financing options.

For additional information, please contact a local Credit Union

Nicole Soltau is the President and Founder of CreditUnionRate.com.
The Leading Credit Union Directory.
Search, Find, Join.
http://CreditUnionRate.com

---

What is a Commercial Mortgage?

A commercial mortgage is a loan that uses commercial property... Read More

How To Save Thousands in Interest on Your Home Mortgage!

So you have a mortgage on your home or planning... Read More

Home Mortgage Loan Refinance ? Benefits To Refinancing Your House Online

Here are some of the benefits to doing your home... Read More

Mortgage Debt Elimination in 5 to 7 years!

Mortgage Debt Elimination shows that most home loan debts will... Read More

Flexible Mortgage Guide

Here is a useful flexible mortgage guide. Flexible mortgages are... Read More

Home Equity Loans

Home equity loans are a popular way for homeowners to... Read More

Repayment Remortgages is The Cure For Outdated Endowment Policy

If bulls and the bears of the stock market have... Read More

To Refinance or not to Refinance -- Here is the Answer

I have written many articles on refinancing a fixed rate... Read More

Adverse Credit Mortgage Loan - Persistence is the Key to Getting Approved

People with bad credit that are looking to get a... Read More

Self Employed Mortgage Loan ? Getting a Mortgage When You?re Self Employed

Being self employed has many benefits. When you are self-employed,... Read More

Understanding Mortgage Basics

As common as mortgages are, there are a surprisingly large... Read More

The Mortgage Loan Application Online - Save Time & Money By Applying On The Internet

"You can save time and money by applying for a... Read More

Reverse Mortgages ? A Tax Free Income For Senior Citizens

I fully realize if it sounds too good to be... Read More

Getting a Home Improvement Loan: What Your Bank Needs

The popularity of stores like Home Depot and Lowe's show... Read More

Carolina Mortgage Loans

You're selling your home and are looking to relocate to... Read More

Follow A Few Simple Steps To Make Shopping For Your New Home Loan A Little Easier

It is likely to be one of the largest purchases... Read More

VA Loans, A Gift from Uncle Sam

Uncle Sam has a gift for the men and women... Read More

What is a Reverse Mortgage?

Simply stated, a reverse mortgage is a loan that enables... Read More

What is a Buy To Let Mortgage?

A buy to let mortgage is a mortgage on a... Read More

Real Estate Lender - Get Approved For a Mortgage Loan Online

Real estate lenders now offer mortgage loan quotes and application... Read More

Understand a Real Estate Appraisal

Happy New Year. Make a difference this year. "Pay it... Read More

Refinance Your Home Mortgage Online

The largest financial obligation most people ever take on couldn't... Read More

Home Equity Loans Company ? 7 Key Questions to Help You Choose One

Choosing the right home equity loan can be tricky; you... Read More

Recent Bankruptcy? Its Not Impossible to Obtain a Home Loan

Because the new bankruptcy laws go into effect on October... Read More

Home Equity Loan - Is It For You?

A Home equity loan has become an easy way to... Read More

Mortgage Lead and Mortgage Leads

A mortgage lead is an exciting thing because you are... Read More

How to Get Your Home Mortgage Loan

If you are thinking of purchasing a new home soon... Read More

Helpful Mortgage Advice

Mortgage advice overwhelming you? Many people get advice from everyone... Read More

Using a Mortgage Refinance Company Online

Online mortgage companies make refinancing convenient and competitive. By researching... Read More

Are You Ready for a Home Mortgage Loan?

Buying a Home and committing to a Mortgage can be... Read More

Finding the Online Homeowner Loans You Want

Online homeowner loans have been growing in popularity in recent... Read More

Home Mortgages: Up, Up and Away!

Refinance NOW-before it's too lateIf you haven't found the time... Read More

Mortgage Loans Explained In Plain English

With the many different kinds of mortgage loans out there,... Read More