Once you have decided to buy a house, you are faced with the problem of coming up with financing. With so many different loan options available, it can be an overwhelming task to select one which is right for your budget. A reputable lending company will provide you with guidance in understanding the different options. These are the main home loan options.
Fixed-Rate Mortgage: This type is the most popular since it is easy to understand and to budget for. You will simply pay the same monthly installment for the whole of your loan term. The interest rate remains the same and the term and the amount can be adjusted to almost anything, after discussing with the lender.
Federal Housing Administration Loan: This is the same as a fixed-rate mortgage, but which is backed by the FHA. This is a government assistance scheme for lower income groups and some first-time buyers. It sets standards for money lenders, mortgage terms and house construction. You can choose lower payment options but this comes with the need for mortgage insurance.
Adjustable-Rate Mortgage: Be careful with this type of loan as the interest rate is adjustable after an introductory period. Here the interest rate after the initial period is adjusted periodically depending on the market rate at the time. This is a bad option if you are planning a long-term repayment spanning 20 or 30 years.
Interest-only Mortgage: This is the riskiest of all plans and has an introductory period where you can pay just the interest. But after the initial period, if you chose to make many interest-only payments, the monthly payments will increase sharply upsetting your budget.