- 16th May, 2020
If you are looking for a mortgage, then you will be surprised and overwhelmed by the main options available for you. If you would like to learn more, the Tembo Financial website is a helpful source for information. Here are the seven major types of home loans that are currently available.
1. Fixed-rate home loan
A fixed-rate loan is the most common type of home loan. With this loan, your interest rate is fixed for the life of the loan. Typically, the length of a fixed-rate loan is anywhere either 15 or 30 years in duration. Other lengths of fixed-rate home loans include 5, 10, 20 and 40-year terms. This type of loan is ideal for people who believe that they are getting the best available interest rate for the life of the loan.
2. Interest-only home loan
With an interest-only home loan, you have the option to only pay the interest on the home loan for the first five or 10 years. This is an ideal choice if you are looking to make the lowest possible initial payment on your loan. After the interest-only payment period expires, the loan converts back to a conventional fixed-rate loan. The one downside to an interest-only loan is that it takes time to pay down the principal loan amount.
3. Adjustable-rate mortgage (ARM)
An adjustable-rate home loan (ARM) is similar to the fixed-rate loan except for that interest rate on the loan can float over the life of the loan. This reflects the overall change in the economy and the rate of inflation. One of the most common ARM loans is known as the 5/1. With the 5/1 ARM, the interest rate remains the same for the first five years and then changes over the next 25 years. This is an ideal loan if you think that interest rates are going to be even lower over the next 25 years.
4. Jumbo loans
A jumbo loan refers to home loans that are so big that they exceed the normal scope of a conventional loan. In some cases, the lender may want to charge a higher interest rate on a jumbo loan. These loans are usually associated with the purchase of a high priced house. Those who tend to take out a jumbo loan usually put a significant amount of money down and have the income verification well in line to handle the monthly payments.
Find the right type of home loan will take some time. Carefully consider the pros and cons of each type of home loan. With the right research, you will find a home loan that will save your money and get you a great deal.