If you’re getting ready to sell your home in the Southern NH area and committing to another mortgage, it may help you to know the different types of mortgages available. We’ll discuss the eight types, separated in categories, in today’s blog, so continue scrolling.
Basic Types of Loans
- Conventional/Fixed Rate Mortgage. These types of loans are your safest bet, because they stay the same, meaning your mortgage payments never change over your loan’s lifetime. This is the standard mortgage type.
- Interest-Only Mortgage. This mortgage option allows you to pay only the interest portion of your monthly payment instead of the full payment; keep in mind, though, that this is for the first five or ten years only. Now, you’re not required to do this, and it can slow down your repayment time, so consider this mortgage option carefully. Afterward, you would pay the mortgage in full as you would a conventional mortgage.
- Adjustable-Rate Mortgage (ARM). With this type of loan, you have many different types in which to choose, with the basic idea that their interest rate changes throughout the life of the loan. The economy and the cost of borrowing money drives this type of mortgage. One common ARM loan is called the 5/1 loan, meaning the interest rate stays consistent for the first five years and then can change for the remaining twenty-five years.
Government Assistance for Certain Groups
- FHA Loans. Guaranteed by the Federal Housing Administration, these mortgages come with built-in insurance to protect against the possibility of the inability to repay the loan. The required down payments are less with these kinds of loans.
- VA Loans. Used for veterans of the U.S. armed forces, and sometimes their spouses, a VA loan doesn’t require a downpayment and is guaranteed by the Department of Veteran Affairs.
- Combo/Piggyback. This type of combo loan involves putting a down payment of less than 20% and taking two loans of any kind in combination to avoid paying Private Mortgage Insurance.
- Balloon. You pay interest for a given time, and then the total principal amount is due after this period.
- Jumbo. This mortgage is too big for the Federal Government to purchase or guarantee and is capped at $700,000. This means that the borrower can’t get the lowest interest rates, which are available on smaller loans.
There you have it. Now, this is by no means all-inclusive, but are the most common (and not so common) mortgage types.
Conventional mortgage loans usually run for 15, 30, or even 50 years. There are pros and cons to each term, so it’s essential to determine how much time you need to pay off a loan. For example, if you choose a 15-year mortgage, it keeps you on track to pay off your home fast and typically has a lower rate. It also costs less in total interest compared to longer-term loans. On the other hand, this term comes with a higher monthly payment.
If you choose a 50-year term, you’ll pay meager monthly payments; however, your interest rate will be quite high, meaning you’ll pay the most in total interest out of any of the terms.
NH Home Buyers for the Win
If you’ve decided it’s time to sell your house in the Southern NH area, consider having us buy your home! We check out your home and see if we want to invest in it. If we do, we draw up the paperwork and close in about a week, most often with a check in-hand for you—a win-win. There’s no obligation, pressure, or fees or commissions. Give us a call to learn more.