Home Finance Mortgage
For a person, who is thinking of purchasing a new home, obtaining a home mortgage loan would be a good way to financing such a purchase.
But, it would be a difficult task for a person to pick up the best deal from amongst a large number of institutions and organization offering different mortgage products to their customer.
To enable a person to understand all these offers properly, the person should have some idea regarding about home finance mortgage. Such knowledge would also help the person to make a proper decision for selection amongst all these offers.
Basically, there are three types of home mortgage loan available. They are:
§ Adjustable rate mortgage
§ Fixed rate mortgage
§ Combination rate mortgage
A brief description of each type of mortgage is now given below.
Adjustable rate mortgage
This type of loan is also known as ARM in short. This type of loan carries a variable rate of interest which would depend on the prevailing market condition.
Fixed rate mortgage
For this type of mortgage, the loan interest rate remains constant throughout the loan period. Generally, these types of loans are offered for longer period of 15, 20 or 30 years.
The disadvantage of this loan is that there would be no change of interest rate even if the rate goes down in the market. The advantage of this type of loan is that the borrower would know the exact amount to be paid for payment of the loan.
Generally, this type of loan is taken by people who would be staying at the home for a long period which would be more than 5 to 7 years.
Combination rate mortgage
This type of loan carries a fixed interest for a certain period of time which is usually 3 to 5 years. This type of loan generally offers interest rate that is lower than the standard interest rate being offered at that time. After this period ends, the interest rate of the loan is recalculated on the basis of prevailing standard interest rate at that time.
This rate would be reviewed after regular intervals. This interval could be three months or one year and would be fixed in the mortgage contract The advantage of this type of mortgage is that the initial installments to be paid for loan payment would be lower at the beginning of the loan period and then the loan could be refinanced to a fixed interest rate when the fixed period is over and the interest rate is to be reviewed. .
The disadvantage of such a loan is that the borrower might have to pay much higher interest rate after fixed period is over and it could turn out to be much higher than what it would have been, in case the loan was taken on fixed interest rate. This type of mortgage is suitable for those who would like to stay at a home for not more than five years.
This guide line would help a person to select the correct one from amongst the numerous offers received.
