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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
Dear Jessica,I am very interested in trying to purchase a 1973 one bedroom mobile home in Norwell,MA.The price is $15999 and I would be able to put some money down and have a good job.Take home about $1200.00monthly.up to date with a few bills-But my problem is poor credit from the past.Is there any way to still be able to apply for a loan.Even for $17,000.Thank you for your time

[Email address deleted as per forum rules. Thanks.]
Posted on: 14th Jun, 2010 09:58 am
Hi Suzanne!

Welcome to forums!

Mobile homes which were build before 1976 do not qualify for loans. The mobile home loan lenders are concerned about the depreciation of the property value of such old homes. Also, you've mentioned that you have a bad credit. After the real estate crisis, most of the lenders have stopped giving loans to people with bad credit.

You can look out for mobile homes which are build after 1976, improve your credit score and then try for loans. Check out the given page in order to know some steps to improve your credit score:
http://www.mortgagefit.com/credit-rating/credit-repair.html

Feel free to ask if you've further queries.

Sussane
Posted on: 14th Jun, 2010 10:57 pm
Hi Suzanne,

You won't be able to get a mortgage loan for purchasing a 1973 mobile home. But you can take out a personal property loan which is usually available at a higher interest rate as compared to mortgages. Another option to buy the mobile home is owner financing. Under this option, you'll pay the purchase price in monthly installments. In case you can't make the payments, the seller may have the right to take away your home provided he's made a written agreement mentioning the terms and conditions of the owner financing contract.

With regards,

Jessica
Posted on: 15th Jun, 2010 05:41 am
We are currently looking at a property in La Vernia, texas as an investment property, I have outstanding credit above 800 but cant seem to find a lender. Any ideas?
Posted on: 24th Jun, 2010 05:48 pm
We are currently looking at a property in La Vernia, texas as an investment property, I have outstanding credit above 800 but cant seem to find a lender. Any ideas?
Posted on: 24th Jun, 2010 05:49 pm
What problems are you running into Bob?
Posted on: 24th Jun, 2010 06:16 pm
first time buyer of 140000 mobile home in mobile park with space rent obligation - do zero down loans exist? Is 5% down doable? income level 156000 possible increase to 60000 less than 500mo credit card and other debt - only bad history is minor medical disputes not paid
Posted on: 22nd Jul, 2010 11:39 am
own my Manufactured home, can I use it as collateral. Credit score 629
Posted on: 27th Jul, 2010 06:20 pm
Posted on: 28th Jul, 2010 12:18 am
I am an investor looking for bank foreclosures in mobile homes. How would i find out which banks financed them,
Posted on: 06th Aug, 2010 02:57 pm
I guess you need to participate in the foreclosure auctions in order to know who financed the mobile homes.
Posted on: 09th Aug, 2010 03:56 am
1500 sq. foot 2005 sivercrest. value in our park seems around $225,000 at least. we owe $108,500 -- 7.25% payment = $750.73 ($190.65 principal and
560.08 interest). original loan date -- 3-2-2009 -- maturity 3-1-2016. we have excellent credit -- 800+.
we also own a vacation home that is for sale at $229,000 with a home equity loan at 2.99% -- payment $250. expiration date - 4/14/2018.
in a park with rent control.
would like lower payments on manufactured home. where do i go? fha? fannie mae? freddie mack?
Posted on: 10th Aug, 2010 09:38 pm
hi markartthebeach,

as you have equity in your property, you would be able to get a refinance. you need to contact your present lender and apply for the refinancing of the mortgage. in case, the rates and terms given by the lender is not affordable for you, then you can speak to the other local lenders and try to refinance your loan.

take care.
Posted on: 11th Aug, 2010 03:29 am
we are looking to take a mortage on our mobile home ,it's a 1994 16 wide by 70 very good cond.we do have a clear title on our home
Posted on: 12th Aug, 2010 12:11 pm
Welcome juan,

As the property is free and clear, you will be able to use it as a collateral in order to get a mortgage. You can contact the mortgage lenders of your area and apply for a loan. If you meet the required criteria of the lender, you would be able to get a loan. You can even speak to the lenders of this community and seek a no obligation free mortgage quote. This will let you know what type of rates and terms you would receive when you apply for a loan.
Posted on: 12th Aug, 2010 11:01 pm
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