Types of Financing for Your Mortgage

When financing a home purchase, the kind of mortgage you choose determines your monthly payment and the interest rate you get on your loan. There are four main ways of financing the mortgage for your home: 30-year fixed rate, 15-year fixed rate, adjustable rate, and interest only. Each of these mortgage financing options has its pros and cons, your credit union can help you find the right financing for your situation.

30-year fixed rate. This is a mortgage that is made as a 30-year loan. The rate is fixed, meaning that the interest rate does not go up or down with fluctuations in the market. And because the interest does not fluctuate, the payments remain fixed as well (although you may have to pay more in property taxes as they increase, or as the home appreciates in value). Most buyers choose this long term financing option because the monthly payments are lower than they would be with a short term loan. The main disadvantage is that the interest rate is often a little higher than it would be for a 15-year loan, and this results in more money paid in interest over the life of the loan. Also, the house gains equity at a slower rate. If interest rates drop, the rate of the loan does not change, but it is usually possible to refinance to the lower rate.

15-year fixed rate. Like the 30-year loan, this rate is also fixed. The main difference is that you pay of the loan in 15 years instead of 30 years. This means that your payments are much higher than they would be if you had a long term loan. However, because you pay it off faster, the home gains equity more rapidly and you save a large amount of money in interest. Additionally, most lenders offer lower interest rates if you opt for a 15-year loan. Your tax deduction for interest will be smaller with a 15-year than with a 30-year, however, because you are paying less interest.

Adjustable rate mortgage. Contrary to the fixed rate mortgage, the adjustable rate mortgage changes when the interest rates changes. Most adjustable rate financing does have a fixed rate and payment for a period at the start of the loan. Depending on the length of the total loan period, this can be anywhere from five to 10 years. However, after the initial period, the rate is variable. This means that you may start out with a very low rate at first, but your rate (and your payments) may increase substantially as the market fluctuates. Because of the nature of the loan (low payments at first), the borrower may qualify for a larger loan than he or she would otherwise qualify for if the rates were fixed.

Interest only loan. This is a loan relatively new to the world of mortgage financing. It is basically a type of adjustable rate mortgage, although a very few lenders offer them at fixed rates. Despite its name, an interest only loan is not exactly that. The borrower pays only the interest payments on the loan for the first five to 10 years (seven to nine years is common). This means that the borrower may be able to qualify for a larger loan. Additionally, someone who might not be able to afford a house payment can do so when he or she is only paying the interest. The downside comes when the initial payment period ends. After the first several years, you begin paying on the principal as well, resulting in a balloon payment. This is a loan that comes with a great deal of risk, especially if you are unsure of whether or not you will earn enough down the road to cover the sudden payment increase.

Again, it is a good idea to consult with your credit union to explore the risks of each option in relation to your circumstance. Contact your credit union about rates, terms and benefits for each of these financing options.

For additional information, please contact a local Credit Union

Nicole Soltau is the President and Founder of CreditUnionRate.com.
The Leading Credit Union Directory.
Search, Find, Join.
http://CreditUnionRate.com

---

Unlock your Home Loan Piggy Bank

With the recent sharp increase in property values your current... Read More

How To Find A Mortgage With Bad Credit

Shopping online for mortgages ought to be trouble free, even... Read More

Home Mortgages: Should You Apply Now?

If you're thinking about applying for a new mortgage or... Read More

Home Equity Loan vs. 401(K) Loan -- Which Should You Choose

Home Equity Loan vs. 401(K) LoanYou've finally decided to add... Read More

Mortgage Tips For The Frantic

It is a curious fact of human nature that people... Read More

The Truth behind Pension Mortgages

A pension mortgage may seem lucrative at the first sight.... Read More

Refinancing Your Mortgage Can Open Up A Lot Of Options For You And Your Family

It can happen to anyone, the roof is leaking, the... Read More

Getting a Home Improvement Loan: What Your Bank Needs

The popularity of stores like Home Depot and Lowe's show... Read More

Refinance Mortgage Loan ? Tips on Refinancing Your Home Mortgage

Refinancing your home mortgage can come with some great perks.... Read More

Home Mortgage Refinancing ? What?s in Your Contract?

Are you one of the millions of Americans who will... Read More

Hard Money Loans - Reasons Why You Might Want To Try Applying With A Subprime Mortgage Lender

Before you apply for a hard money loan, try applying... Read More

Secured Homeowner Loans to Reiterate that a Home Provides More than a Roof Over Your Head

"The ache for home lives in all of us, the... Read More

Guide to Mortgage Terms

Listed below is a guide to mortgage terms. It is... Read More

Buying a Home With Bad Credit - Get Approved With a Recent Bankruptcy or Foreclosure

A few years ago, if you had a bankruptcy or... Read More

Refinance Benefits - Refinancing Could Save You Money

The most common reason most people refinance is to save... Read More

Internet & Mortgage Calculations

"You've been approved!" The words you have always wanted to... Read More

Home Loans for Credit Challenged Borrowers

Just because you have negative items on your credit report... Read More

Are Biweekly Mortgages Really Worthwhile?

You may have heard people, especially mortgage lenders, extolling the... Read More

Who Could Benefit From A Reverse Mortgage?

What is a "Reverse Mortgage?"Also known as a Home Equity... Read More

Refinancing Your Home Mortgage - Get Up To 125% Cash From Your Homes Value

With the low interest rates being offered by lenders today,... Read More

How to Get Your Home Mortgage Loan

If you are thinking of purchasing a new home soon... Read More

Refinancing Your Home Mortgage Loan With Bad Credit

There are numerous reasons a person has bad credit. Late... Read More

Things that You Need to Know before Financing Your Home

Frequent Asking Questions:What are Points? A. There are several types... Read More

A Guide to Quick Homeowner Loans

The search for quick homeowner loans can seem futile at... Read More

Zero Down Mortgage Loans - Is 100% Financing a Good Idea and Can You Get Approved?

Are you wondering if you can get approved for a... Read More

Bad Credit Mortgage Loans ? How To Get Approved

Persistence is the key working toward getting approved for a... Read More

Online Home Equity Loans: A Basic Glossary

Home equity loans can be a great idea for individuals... Read More

Online Mortgage Brokers - What You Might Not Know About Home Loans & The Internet

You may think that applying online for a mortgage is... Read More

How to Compare Fixed Rate Mortgages and Adjustable Rate Mortgages

There are many types of mortgages, and the more you... Read More

The Mortgage Loan Application Online - Save Time & Money By Applying On The Internet

"You can save time and money by applying for a... Read More

Home Loans

Buying a home remains the great American dream. Home ownership... Read More

Home Equity Loans

A home equity loan allows you to cash-in on the... Read More

Home Equity Loan Information - How to Use One Wisely

Using a home equity loan to get out of debt... Read More