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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,

It's a good idea to consolidate your car loans, credit card debts etc. into a single mortgage. You can then make one single monthly payment to pay all your debts. Your credit scores are quite good. However, your low income can be a problem for you to qualify for a consolidation loan. There are lenders in this community, with whom you may seek a no-obligation free mortgage consultation. This will let you know if you can qualify for the loan with the income that you currently have.
Posted on: 21st Dec, 2009 02:18 am
i am looking to refinance my mobile home the current balance is aprox 37000.00 the land with the mobile home is not included in the current loan and is free of debt i would like cash out in the amount of 15000 the tax value of the property as a whole is 64000.00 do you have programs available to help with 0 down and closing costs financed in tennessee?
Posted on: 05th Jan, 2010 12:59 pm
Hi Organize,

Mobile home loans are not easy to get these days. Doing cash-out refinance on your current mobile home loan may not be too easy. But given the fact that there is enough equity in the property and you qualify for the refinance, it should not be too difficult either.

However, the lenders may require you to pay certain amount of closing costs for the loan. They may also include the costs into the loan, but in that case the rate of interest will be increased.

You can contact your local lenders or can go for a no-obligation free mortgage consultation with the lenders in this community. They will assess your situation, check your credit scores and other factors and will let you know if you can refinance your mobile home.
Posted on: 05th Jan, 2010 11:32 pm
i am a holder of an unsecured promissory note in the amount of $140,000. the note is accruing 10% interest. at this point, i do not have specified repayment terms, although I will have a revised note with specified repayment terms within the next two weeks.

I'd like to assign this loan and receive the principal now. i am willing to "sell" the note for the principal only and have the "buyer" receive all of the interest.

is there a market for this type of transaction?
Posted on: 25th Jan, 2010 09:38 am
i'm sure there is, but not quite certain where.

you could always advertise on craigslist, and i surmise that you can also do internet searches for investors willing to undertake what you propose.
Posted on: 25th Jan, 2010 10:33 am
I am looking to purchase the property I currently have under a contract for deed. The property is located in Pittsburg, Texas and is a 1983 Double Wide on 4 lots in a waterfront addition. The home has decks surrounding the home, landscaped, etc. The last appraisal that was done on it was 2 years ago and it appraised for $40,000. The purchase price I would be financing is $38,000.00. Would like to to a conventional mortage for 15-20 years - any suggestions on lenders?
Posted on: 27th Jan, 2010 09:23 pm
Hi,

You first need to check if the property is worth what you are purchasing it for. Things have changed drastically in the past few years and there's no guarantee that the home will still appraise at somewhere around $40k. The number of lenders offering loans against mobile homes has also gone down. You need to do some extensive search to find a lender to finance the mobile home. However, this should not be impossible either. If you have good income and credit scores, you can qualify for a conventional loan on your mobile home.
Posted on: 28th Jan, 2010 03:57 am
can anyone answer this, what lenders are still lending on a manufactured home. Permanent foundation with perfect credit on 5 acres. I am having the hardest time finding one. thanks
Posted on: 16th Feb, 2010 12:42 pm
Hi EA,

It's true that there are very few lenders who are offering loans against manufactured homes. If your credit is perfect and the mobile is in good condition, there should not be any problem for you to get the loan. But given the changes in the mortgage industry after the subprime mortgage crisis, you will have to search a lot to find a lender offering loans against mobile homes. There are lenders in this community as well. You can go for a no-obligation free mortgage consultation and check out if they can help you with the loan.
Posted on: 17th Feb, 2010 12:07 am
I have an extremely high debt ratio at the current time. I need to consolidate my bills but my equity isn't that much. I owe 143,000 and my property appraised last time in the 180's and is insured for 186,000 currently. What type of loan would you suggest. Im in Utah and I currently have a rate at 6.125 30 yr. I have high credit card debt.
Posted on: 18th Feb, 2010 10:13 am
I want to purchase a 1998 Southern Mobile Home for my daughter. I must be pre-approved before I can look at the mobile home. How do I get pre-approved. The banks will not loan anything that is 10 years old or older. If I am pre-approved then I can put in a bid on the mobile home.
Posted on: 19th Feb, 2010 10:43 am
To Geri,

If you have extremely high debt-to-income ratio and there is not much of equity in the property, you will not qualify for an equity loan to be able to consolidate your bills. If you have too much of credit card debts and you want to consolidate them, you can contact a debt consolidation company or take help from a credit counseling agency. Through a debt consolidation or a debt management program, you can pay off your multiple credit card bills through single monthly payments. Once you start paying these bills, your credit scores also start to improve.

To Donald,

s true that the lenders now days do not offer loans against mobile homes which are a bit older. If you get pre-approved for a loan, you can put in a bid on the mobile home. But getting pre-approved for a loan to purchase an old mobile home will not be easy in this market. You can contact your local lenders. They may be able to assist you with the mobile home loan.
Posted on: 23rd Feb, 2010 05:34 am
I've read from Toronto Mortgage Brokers that Depending on the circumstances surrounding my bankruptcy, generally some lenders would consider providing mortgage financing. I would like to get second opinion with you guys as well. We are about to lose our house but we have declared bankruptcy already. Thanks
Posted on: 23rd Feb, 2010 07:48 pm
hi mondextrial,

in most of the cases, you need to wait for at least 2 years after the bankruptcy discharge to qualify for a new mortgage. however, in chapter 13 bankruptcy, if you have been making payments on time as per the repayment plan for about a year or so, you may qualify for a home loan. but in majority of the cases, a minimum of 2 year waiting period is a must if you want to get a loan after bankruptcy.
Posted on: 23rd Feb, 2010 10:21 pm
I have found a 6 bedroom and 3 bath mobil home on almost 3 acres. My son in law an daughter are trying to get someone to take a mortage on it for us. My son in law just got out ofthe army and is trying to get his va started from two blow axiles in both knees an as of now hes got unemployment plus the imcome my daughter gets and my mom an me gets also which should be around 4000 a mo
Posted on: 23rd Mar, 2010 09:37 am
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