If you are looking to apply for a mortgage loan, also known as a mortgage plan, your head may be swirling with questions. Here are some frequently asked questions about mortgage loans which may help to answer some of your questions.
Are There Different Types of Mortgage Loans?
Yes. There are many different types of mortgage loans or mortgage plans out there. Here are a few of the most popular.
A fixed-rate has an interest rate that is fixed for the life of your loan, which is typically 15, 20 or 30 years in length. During that time, the interest rate of your loan will not fluctuate.
The biggest benefit to this type of loan is that you are guaranteed a certain interest rate, regardless of whether rates increase. This can help you plan and budget. The downside is that if rates go down, you could end up paying a higher interest rate than you would if your rates fluctuated with the market.
An adjustable-rate mortgage has an interest rate that fluctuates as average home mortgage interests rates change. You are not locked into any type of interest rate at any time.
The biggest benefit to this type of loan is that you are always paying the going interest rate. The downside to this loan is that if interest rates go up, so will your payment. This can make it hard to plan and budget.
A convertible mortgage is a cross between a fixed and adjustable-rate mortgage. Your interest rate is fixed for the first 12 to 24 months of your loan and then it fluctuates.
This is a great type of loan to get into if you think interest rates are high, but will drop in the next few years. The downside to this loan is that if you predict incorrectly and rates rise, so to will your interest payment for your home loan.
Is One Type of Loan Better Than the Others?
Most experts recommend taking out a fixed-rate mortgage. The other loans can be risky and hard to predict. But if you don’t plan on having your home for a long time, or plan on refinancing soon, adjustable or convertible mortgages may be something to consider.
What Hidden Dangers Should You Be Aware of?
As you are applying for a loan, you need to be sure that you know exactly how much you are paying for the mortgage each month. While the lender may make you aware of most of your expenses, they may not make everything clear. Make them put in writing exactly what fees you are being assessed and what the amounts of those fees are. Common fees that may be hidden or not disclosed include prepayment fees, lender’s fees and the cost of your mortgage insurance.