Mortgage: Your First Mortgage

What Type of Loan Do I Need 

The Most Appropriate Loan Type 

Loans can be very helpful.  However, this is only the case if you were able to choose the most appropriate for you.  Otherwise, you might end up being so burdened by what you have to pay regularly for the loan.   

Loan providers are always willing to give you assistance on this.  It is true that loan options can really be confusing.  Thus, as long as you communicate well your needs to your loan agent, you may expect a professional advice and suggestions from them.   

One type is called fixed rate mortgage.  The rates here are consistent all throughout the life of the loan.  Thus, monthly payments do not fluctuate and remain the same until everything has been settled.   

If you prefer lower monthly payments, you may choose 30-year fixed-rate mortgages.  The downside, however, is the fact that it will take you a while to accumulate equity in your home.  This option is most advisable only if you intend to stay in your home for quite a number of years with a stable rate.   

If such is not the case for you, you may opt for a 15-year fixed-rate mortgage instead.  Since the principal and interest are distributed to a 15-year period, you easily accumulate equity in your home.  However, the monthly rates are definitely higher since you cut the period to half.  This is most advisable if you have intentions of selling your home in a few years time while enjoying a stable rate.   

The disadvantage for any form of fixed rate mortgages is manifested if interest rates happen to go down after some time.  As soon as you agree to a certain rate at the start, no matter how much the interest rates decrease along the way that will not cover you anymore and you will have to adhere to what has been agreed upon.  

Another type is called adjustable rate mortgages.  Interest rates here change periodically based on a stable index so monthly payments will either increase or decrease.  A 1-year adjustable rate mortgage, for example, causes adjustments in the interest rates annually.   

Common indices followed by adjustable rate mortgages include 1-year Treasury Notes, Federal Funds rate, and the National Cost of Funds Index.  There is usually a margin of one to two percentage points that are added up to the declared index rates.   

The rates may increase or decrease depending on the two caps that are normally included.  The first cap sets forth limitations on the adjustment during a certain period while the second one gives limitations all throughout the loan.   

The advantage with this type is that monthly payments go down with a decrease in the index.  However, payments are also going to be vulnerable whenever there is an increase.   You might then want to evaluate the current system and situation given these pros and cons before deciding which one to choose. 

Moreover, if in case you do not want to be tied up with an adjustable rate mortgage until the end of your loan, you may opt to avail of a convertible loan.  This is actually an adjustable rate mortgage that can be changed to a fixed rate mortgage after a declared number of years.  However, you may need to pay for some costs when you do avail of this. 

Another way of possibly shortening your mortgage is through the purchase of a balloon mortgage that may function either as a fixed rate mortgage or an adjustable rate mortgage during the initial years.  After a certain period of time, a considerable amount of loan is left which you have to pay in bulk.  This is most ideal to those who have plans of selling the home after some years and use the money generated from the sales to pay off the remaining balance and finally be loan-free.  

Indeed, there are several options for you in the market.  You only have to identify exactly what your financial situation really is and from there, choose the loan type that will not give you a hard time every month.  Also, an idea about the current condition of the loan industry will help since it will make you aware which loan type will be most advantageous given your financial capabilities.   

In the upcoming chapters we will endeavor to discuss each type of loan in greater detail.

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Foreclosure gridlock threatens economy - Mortgage Mess- msnbc.com
As millions of homeowners fall behind on mortgage payments and face foreclosures, many are running into bureaucratic nightmares as they try to restructure their loans.
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Countrywide Financial Corp., under pressure to help stem growing home loan defaults, says it will expand programs to help borrowers manage their mortgage payments regardless of the ...
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As the housing market crumbles, homeowners are worried about mortgage payments and sellers are worried about slumping prices ? but the companies that insure their loans are ...
The Mortgage Mess - A special report by msnbc.com.- msnbc.com
The Mortgage Mess - A special report by msnbc.com on mortgage problems affecting the housing market with additional headlines and news about the subprime mortgage industry.
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Financial markets are pretty skittish these days. But in any market, one person?s loss is often another person?s gain. So where did all those ?losses? from bad mortgages go
Want a second mortgage? Good luck! - Mortgage Mess- msnbc.com
The common practice of homebuyers with shaky credit taking out second mortgages for downpayments is ending because there?s no investor demand for securities backed by such loans.
Countrywide mortgage production tumbles - Real estate- msnbc.com
Countrywide Financial Corp. said Tuesday its level of home loan production fell by almost half last month from the same month last year, while the percentage of delinquent loans ...
Study: Rising foreclosures to hurt U.S. cities - Mortgage Mess- msnbc ...
Rising foreclosures will lead to billions of dollars in lost economic activity next year in major U.S. cities, but homeowners and financial institutions have the ability to work ...
Foreclosures hit some cities hard - Mortgage Mess- msnbc.com
Foreclosures rates continued to rise in the third quarter in most of the top 100 largest metropolitan areas of the country, according to the latest data from RealtyTrac.
Wall Street?s role in housing meltdown probed - Mortgage Mess- msnbc ...
Regulators are trying to punish Wall Street for mortgage finance practices that expanded home ownership and spread risk among a host of new players ? but also may have duped ...

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