There are many different types of mortgages available to homebuyers. Each type of mortgage has its own advantages and disadvantages, so it’s important to choose the right one for your needs. Here’s a look at some of the most common types of mortgages:
Fixed-rate mortgages
A fixed-rate mortgage has an interest rate that remains the same for the life of the loan. This means that your monthly payments will stay the same, no matter what happens to interest rates. The main advantage of a fixed-rate mortgage is that you’ll always know exactly how much your payments will be. The downside is that if interest rates fall, you’ll be stuck with a higher rate than you could get with a different type of mortgage.
Adjustable-rate mortgages
An adjustable-rate mortgage (ARM) has an interest rate that can change over time. The initial interest rate is usually lower than what you’d get with a fixed-rate mortgage, but it can increase (or decrease) as time goes on. The main advantage of an ARM is that you could end up with a lower interest rate if rates go down. The downside is that your payments could also increase if rates go up.
FHA mortgages
A mortgage insured by the Federal Housing Administration (FHA) is a good option for first-time homebuyers or anyone with a limited budget. The main advantage of an FHA mortgage is that you can get a lower down payment and more lenient credit requirements than you would with a conventional loan. The downside is that you’ll have to pay mortgage insurance, which will add to your monthly payments.
VA mortgages
A mortgage guaranteed by the Department of Veterans Affairs (VA) is available to eligible veterans and active-duty military members. The main advantage of a VA mortgage is that you can get a low or no down payment loan. The downside is that you’ll have to pay a funding fee, which can add to your costs.
There are many other types of mortgages available, so talk to a lender to find the best one for your needs.
Refinancing
The type of mortgage you ultimately decide on won’t necessarily be the mortgage you always have. If you eventually decide you want a different type of mortgage, you may have the option to refinance. Refinancing a mortgage is the process of taking out a new loan to pay off an existing mortgage. This can be done for various reasons, such as to lower monthly payments, get cash out of equity, or avoid foreclosure.
Refinancing generally involves the same process as when you originally applied for a mortgage. You will need to provide financial information, such as income, asset, and employment verification, as well as go through a credit check.
Once you have been approved for refinancing, you will need to sign a new mortgage agreement and closing documents. Be sure to read these documents carefully, as they may be different from your original mortgage agreement.
If you are struggling to make your mortgage payments, refinancing may not be the best option for you. You may want to consider other options, such as a loan modification or short sale.
Refinancing a mortgage can be a great way to save money or get cash out of equity. However, it is important to make sure that it is the right decision for your particular situation. Speak with a mortgage lender or financial advisor to learn more about refinancing and whether it is the right option for you.
