Mr. Flexible: Finding Other Mortgages that Fit Your Needs
Written by James Chan   



In recent years, many other types of mortgages have evolved beyond the traditional fixed rate and ARM mortgage types. Unfortunately, as a byproduct of the housing boom of the early 2000s, many of these alternative mortgages are designed to offer low introductory rates with significantly higher later payments. Therefore, it is extremely important to know at least the basics of each type of mortgage now being offered. Here’s a guide:

Interest-Only Loan: you get to only pay interest for the mortgage for a set period of time. After that period, you have to pay the interest and the principle by the remainder of the term, meaning larger principle payments than in a fixed rate mortgage. Take out such a mortgage only if you plan on selling it soon or can afford the later payments;

Biweekly Mortgages: instead of making a mortgage payment every month, you pay one every two weeks. It can save you money and time off your mortgage since you make 26 biweekly payments, as opposed to 24 if you simply pay twice a month. You essentially make a extra monthly payment per year;

Option ARM: allows you four monthly payment options: a minimum payment, an interest-only payment, a 15-year fully amortizing (paid-off) payment, and a 30-year fully amortizing payment, with the payments calculated based on the remaining principal. You can choose a different option each month. It offers the most flexibility, but is also the most complex. In addition, the temptation to make only the minimum payment and interest-only payment can be strong;

Balloon Mortgages: initial payments work like a 30-year mortgage- usually with lower interest rates than fixed rates and ARMs- but the remaining principle has to be paid off in full after a specified time period, usually five to seven years, unless you agree to a “reset” in which you pay the current interest rate for the remainder of the mortgage term. However, the “reset” option on a balloon mortgage is only available if you still own the house, have no late payments of over 30 days in the past 12 months, and have no back taxes or liens owed on the property. Useful only if you plan to sell the house before the balloon payment.

FHA Loan: Lower interest rate mortgage loans available to qualified lower-income families through private FHA loans insured by the Federal Housing Administration (FHA);

VA Loan: works similarly to an FHA loan, except available to military veterans only and guaranteed by the U.S. Department of Veterans’ Affairs (VA) instead of the FHA.
Last Updated on Wednesday, 22 December 2010 05:22