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Types of mortgage loans - Compare and choose the best option

Posted on: 08th Dec, 2005 08:23 pm
The mortgage industry offers a variety of loan programs suitable for a wide range of borrowers. There are loans that require high payments but there are also programs specially developed to provide homeownership opportunities to low-income families. These mortgages have special features and one really needs to get a brief idea of their pros and cons before he applies for it.

This section provides you with an explanation of mortgage types and their features. Apart from highlighting the types of mortgage loans, this section also mentions who all are suitable for the different types of mortgages. The purpose is to help you explore the features of various types of mortgage loans so that you can compare and choose the one that's best for you.


Types of mortgagesFeaturesEligible Borrowers

Fixed rate mortgage
(40, 30, 15, 10 years)
Fixed rate of interest and hence fixed Monthly payments throughout the loan term.
  • Borrowers who are planning to occupy the property for at least 10 years.
  • Those who don't prefer higher payments.

10/1 year ARM

Interest rate and the monthly payment remain the same for 10 years. From the 11th year, the rate is adjusted every year. This will change the payments each year for the rest of the loan term.
  • Intend to occupy the property for more than 10 years.
  • Like to make stable payments initially but can afford higher payments later on.
    OR
  • Plan to leave the property within 10 years.
  • Want to continue with the loan even if there are changes in the plan.

7/1 year ARM

Interest rate and monthly payments remain fixed for the first 7 years. From the 8th year, interest rates are adjusted every year. The payments are thus changed every year till the loan period is over.
  • Plan to stay in the property for more than 7 years.
  • Prefer stable payments initially but can keep up with higher payments later on.
    OR
  • Plan to vacate the house after 7 years.
  • Want to carry out with the loan in case the plan changes.

7/23 (2-Step)

Fixed rate and monthly payments for first 7 years. On the 8th year, the interest rate is adjusted according to prevailing market rates. The resulting payments will remain constant for the remaining loan period.
  • Plan to occupy the property for more than 7 years.
  • Those who can afford just 1 payment adjustment.
    OR
  • Those who plan to move out within 7 years.
  • Those who want to continue with the loan in case there is any change in the plan.

5/25 (2-Step)

Interest rate and monthly payment remain the same for the first 5 years of the loan period. The rate is adjusted on the 6th year to reflect the prevailing rate. The resulting payment remains constant throughout the rest of the loan term.
  • Borrowers intending to stay in the property for more than 5 years.
  • Those who can bear with one payment adjustment
    OR
  • Borrowers who plan to move within 5 years.
  • Those who want the loan to remain in force in case of any change in the plans.

5/5 and 5/1 year ARM

For the first 5 years, the interest rate and monthly payment remain constant. But from the 6th year, the rates adjust after every 5 years and 1 year respectively.
  • Those who can put up at the property for more than 5 years.
  • Borrowers who like stability in monthly payments initially although there may be increase in payments later on.
    OR
  • Those who may leave the house within 5 years.
  • Borrowers who want to continue with the loan in case plans change.

3/3 and 3/1 year ARM

The interest rate and monthly payments remain fixed for the first 3 years. From the 4th year, the rates are adjusted in every 3 years and 1 year respectively.
  • Borrowers who plan to stay in the property for than 3 years.
  • Those who can accept initial payment stability and any changes later on.
    OR
  • Borrowers willing to abandon the property in less than 3 years.
  • Those who want the loan to remain in force in case of any change in the plan.

1 year ARM

The interest rate is adjusted every year as a result of which the monthly payments also vary each year for the entire loan term.
  • Borrowers who want to take advantage of low rates.
  • Those who can bear additional costs due to yearly payment changes.
    OR
  • Borrowers who cannot qualify for high rate loan programs.

5 year Balloon Mortgage

Interest rate and monthly payments remain unchanged for the first 5 years. After 5 years, the borrower must refinance the loan (which is largely due) at the prevailing rates.
  • Borrowers who plan to occupy the residence for more than 5 years.
  • Those who can refinance their previous loans at the prevailing market rates.
    OR
  • Those who intend to vacate the property within 5 years.
  • Those who like stability in payments.

7 year Balloon Mortgage

Interest rate and monthly payments remain fixed for 7 years. At the end of 7 years, the borrower should refinance into a new loan at the prevailing market rates.
  • Borrowers who want to live in the property for a time period exceeding 7 years.
  • Those who can refinance at the available market rates.
    OR
  • Those who are planning to move out of the property within 7 years.
  • Borrowers who prefer payment stability.

Related Articles
Hi,

If there's enough equity in the property, you can do a cash-out refinance and use the excess cash to carry out home improvements and consolidate bills. In case, you do not qualify due to bad credit, your husband can apply for the loan. How good is his credit?
Posted on: 31st Jul, 2009 05:22 am
jenn, it's difficult to respond to you with clear-cut information. "not so good" credit runs a wide gamut, as does "good" credit. if you know your scores, that's a definite help to us who try to answer your query.
Posted on: 31st Jul, 2009 08:00 am
My FICO score is 548. I know that is horrible ,but do you think that I will ever be able to get a home loan. My husband and I have never purchased a house. We ruined our credit when we were younger.
Posted on: 22nd Sep, 2009 02:15 pm
ever? yes, but it's going to take some work. if you have collections or judgments, they'll need to be eliminated. if you have accounts that you pay late now, you'll have to get caught up and stay that way. if you lack favorable credit, you're going to have to acquire some. that may mean you'll wait a little longer until the negative things are gone.

you could, conceivably, raise your score sufficiently within a year if you have the funds now to pay things off or reduce balances and maintain a good record in the interim period. obviously, how fast the score goes up will depend on how much you owe and how quickly you can eliminate bad debt.
Posted on: 22nd Sep, 2009 02:20 pm
My husband and I are trying to find a mortgage co. that will finance land and manufactured home on permament foundation. Its already set up and has been in place for several years
Posted on: 02nd Nov, 2009 03:47 pm
Hi,

The no. of lenders offering mortgages on mobile home has reduced in recent times. The eligibility criteria are now a lot stricter. What are your credit scores? How old is the mobile home? Is it in good condition? Have you contacted any local lender?
Posted on: 05th Nov, 2009 04:13 am
In the state of CA, a mobile home (pre June 1976) can be converted to a "fixture improvement on real property", however, FHA/FNMA guidelines require a "Manufactured home" (built post June 1976).

Do you know of a lender (if major bank, can you give a specific branch) in the State of CA that recognizes that once its an "improvement" legally its the same as a stick built house (and they certainly give conventional loans to stick built homes older then 1976.

Thanks
Posted on: 14th Nov, 2009 01:01 pm
Hi Guest,

As far as I know, no lender wants to finance a mobile home that was built before June, 1976. In order to be eligible for a loan, mobile homes need to comply with the construction and safety standards set by the HUD. I am not sure if a 'fixture improvement' can get a mobile home approved for a loan. Moreover, things have changed drastically in the past few years and it does not make financing a mobile home (built before June, 1976) any easier.
Posted on: 18th Nov, 2009 01:26 am
i am in agreement with jenkin7 - lenders have no interest in financing an older mobile home. not only that, as he also pointed out, the vast majority of lenders want nothing to do with mobile homes at all.
Posted on: 18th Nov, 2009 07:38 am
what type of loans are the right ones for someone who was given house with no mortgage , but needs money to get home improvments done , but has poor credit .
Posted on: 28th Nov, 2009 06:03 pm
TC

Your loan options were already spelled out for you on this thread. If your questions still are not answered here in mortgagefit, then you can check out the following...

LOAN OPTIONS
POOR CREDIT OPTIONS
Posted on: 28th Nov, 2009 06:30 pm
THi! I want to purchase a mobile home and my income is about 60,000. My credit score is around 750 do I need a big down payment. Purchase price is 79000 how much down do I need. Just to have an Idea. Thank you
Posted on: 15th Dec, 2009 10:06 am
I am on KS and need a home loan of 32,000 minus 3200 for down payment, the home I am wanting has dropped in price from 35,000 to 20,000 and I owe 7,500 on my car and 4,000 on a credit card. I am wanting to consolidate them all so I can afford this home as my debt to income ratio is bad, my credit scores are 680, 716 and 730 with a tax lien I just paid off and filed the paperwork in district courtn and have the stamped satisfaction of judgement. I am on SSI disability and the consolidation is the only way my debt to income ratio will work, where can I get this done?
Posted on: 16th Dec, 2009 08:03 pm
Posted on: 16th Dec, 2009 08:12 pm
No this is a ranch style home and the price is 20,000 and my car loan is 7,500 and my cc is 4,000 and if they were all consolidated it would be doable on my income which is a very low SSI od 674, but if I continue with rent at 425 and car payment at 172 and cc at 100 a month and still have utilities and insurance and phone, I will be homeless. Help please.

My credit score is 680 to 730. The home is in KC, KS and I am in Lawrence, KS.
Posted on: 16th Dec, 2009 08:30 pm
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