Mortgages: What is Available Out There?
With the housing market recovering, and interest rates at monumental lows, many people are looking to purchase a home again. One common question that these home buyers have is what kind of home loan (commonly referred to as a “mortgage”) they should get. Many often do not even know that there are different types of mortgages available. But before you purchase a home, be sure to learn about your Phoenix Real Estate options, and find the best fit for you.
Fixed Rate Mortgage
This is typically what people think of when they think of a mortgage. You lock in an interest rate when you get the loan, and that is the interest rate you will keep for the life of the loan. Typically you can get a fixed rate mortgage for a term of 15 or 30 years. And while you have the benefit of no surprises, the draw back is that if interest rates go down after securing the loan, you will be paying the higher interest rate that you locked in at the start of your mortgage.
Adjustable-Rate (ARM) or Variable-Rate Mortgage
This kind of mortgage is a great option for someone who knows that their income will be increasing down the road, and wants to purchase their home today. With an ARM, the lender will offer a lower initial rate of interest than a fixed rate mortgage, but after the initial period, the lower rate expires. The rate that you pay will reflect what the current market rate is. Your rate then typically fluctuates over the life of the loan, so if the rates go up, so do your loan payments.
FHA (Federal Housing Administration) Loan
FHA mortgages are loans that are backed by Federal Housing Administration mortgage insurance. This is a type of Federal assistance that allows buyers who may not qualify for a home loan to obtain a loan with a lower down payment. To obtain an FHA mortgage, you will need to find a broker who is approved by the U.S. Department of Housing and Urban Development.
This is a loan that is guaranteed for eligible veterans, active duty personnel, and surviving spouses. This loan is guaranteed by the U.S. Department of Veterans Affairs, and must be issued by a qualified lender. Through a VA loan, the borrower may be eligible for a larger loan than through traditional mortgage lending, and often at competitive rates with low or no down payments.
A balloon mortgage usually is a fixed rate loan, but has low payments for a fixed period of time. The payments are low however, because the mortgage does not fully amortize (an even distribution of principal and interest) over the term of the loan. This leaves a large lump sum due entirely after the initial period. These mortgages are more common for commercial real estate purchases rather than Arizona residential real estate purchases.
This is very similar to a Balloon Mortgage. Again, here the mortgage does not fully amortize, and instead, the borrower only pays the interest on the loan for a fixed period of time. After this initial period, the balance of the loan is due. Typically this type of loan is used only as a temporary mortgage until more stable financing is available.
Also known as an equity release, it is a loan available to seniors, and allows them to use the equity of their home to live on. The loan does not need to be repaid so long as the senior continues to live in the home. Title to the property may still be disposed of according to the homeowner’s wishes, but will be encumbered by the amount owed under the mortgage. A senior looking for a reverse mortgage is cautioned to beware of false advertising promises as some lenders prey on seniors. Be sure that the loan is Federally insured.
If you are looking for a home and trying to figure out which kind of mortgage is best for you, contact the Phoenix professionals at Gunderson, Denton, and Peterson, P.C. who will help you analyze your needs and explore your options.
Written By Bert Miller – Gunderson, Denton & Peterson, P.C.
Mesa Office: 1930 N. Arboleda, Suite 201
Mesa, Arizona 85213
Phoenix Office: 40 N. Central Avenue, Suite 1400-1532
Phoenix, AZ 85004
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