Undoubtedly, finding the ideal property is half the battle in your home-buying journey. To add, the other half is selecting the best-fitted type of loan. Simply put, you will be repaying your mortgage loan for a long period, so one of the most imperative tasks is to find a mortgage type that suits your needs as well as your budget.

Let’s walk you through the different aspects of mortgage loans and their terminology!

First, What Do You Mean By Mortgage?

In simpler terms, there are two essential components of a mortgage loan i.e. interest and the principal. Furthermore, principal refers to the exact loan amount borrowed and interest refers to additional payment borrowers needs to pay to the lender in place of borrowing money.

A mortgage is repaid in duration i.e. in years; it's called a mortgage term. Not to mention, another crucial factor included in the mortgage is APR (Annual Percentage Rate) which abets in assessing the total loan cost paid by the borrower. Moreover, APR is inclusive of interest rates and additional mortgage loan fees.

Second, what Types of Mortgages?

Every mortgage varies from each other; some have strict guidelines such as traditional lenders may require a 20-30% down payment whereas some private lenders may offer a loan at a 3-4% down payment of the home price value. On top of that, to qualify for any loan type borrowers needs to have a good credit history.

Here are the Types of Mortgages

• Conventional Loan

• Fixed-Rate Mortgage

• Adjustable-rate Mortgage

• Government-insured Loan

Conventional Loan

Conventional loans are the type of loans not backed by the US federal government. Any borrower with a stable job, pristine credit history, and income history has the chance to qualify for a 3% down payment conventional loan. Plus, a conventional loan comes with two packaging- Conforming and Non-Conforming!

• Conforming

Conforming to conventional loans is confined by the maximum loan limits according to geographic area. For the year 2022, the conforming loan limits are close to $64700 and $970,800 for the most expensive area, respectively.

• Non Conforming Loans

Non-Conforming loans are loans which do not meet the Federal Housing Finance Agency (FHFA) standards. This type of loan is for larger dwellings and is usually offered to borrowers with a poor credit score.

Advantages of Conventional Loans

• This type of loan can be used for primary, secondary, and investment property.

• Once 20% equity is reached one can ask the lender to cancel PMI (Private Mortgage Investment)

Fixed-Rate Mortgage

As the name implies in a fixed-rate mortgage home loan interest rate would remain the same over the loan lifespan, this also means the monthly mortgage would not change. Additionally, this type of loan comes with either 15 years or 30 years time duration. However, some lenders may offer borrowers some flexible terms such as 8 years, 10 years, and 30 years. With that said, if you want to pay your home loan faster then it's recommended to choose a short-duration fixed-rate mortgage. But this also means higher monthly payments.

Advantages of Fixed-rate Mortgage

• This loan can be easily adjusted with the household budget and expenses.

• The monthly payment and interest rate would remain the same.

Adjustable-Rate Mortgage

ARM (Adjustable Rate Mortgage) is a type of mortgage loan where the rate of interest is fixed for the first 10 years. After the period expires the rate fluctuates according to the market conditions. Moreover, this loan falls under the category of risk as the monthly payments are higher post rate of interest increases.

Perhaps, ARM loans are the ideal options for those who don't plan to stay in the house for long until the initial period of fixed rate of interest. The reason for opting for ARM and not the fixed-rate loan is –in the initial year of repayment the rate of interest is lower as compared to a fixed-rate mortgage.

With that said, this type of loan can be the safest bet for people who don't wish to live in the dwelling for long along with saving a substantial amount on the interest repayment. However, do remember if you stay longer in the house (more than 10 years) be prepared to pay higher monthly installments.

Advantages of ARM

• In contrast to fixed-rate loans, the rate of interest in ARM is lower in the initial year of repayment.

• One can save a good amount of money on repaying the interest payments.

Government-Insured Loan

This type of loan is not directly backed by the US government but they assist three government agencies namely USDA (The U.S. Department Of Agriculture), FHA (The Federal Housing Administration) and VA (The U.S. Department of Veterans Affairs)

FHA Loans – This loan is backed by FHA, under this loan US citizens' dream of homeownership is possible as the down payment is less. Simply put, the borrower needs to have a good credit score and can qualify for an FHA loan without paying a heavy down payment.

USDA Loans - This type of loan is for moderate-to-low income borrowers to own a house in rural areas of the state. Not to mention, the borrower needs to buy a home only in USDA-defined eligible areas along with meeting income criteria to qualify for this loan.

VA Loans - This loan is designed by the US government for the members of the U.S. Military both active and veterans. The VA loan offers a low-interest and flexible option to the borrower. 

In Conclusion

Now, that you are fully aware of the type of mortgage loans in the market it’s time to choose the right loan lender. As every lender has its own set of rules and regulations such as traditional banks, credit unions, brick-and-mortar finance shops, and new-age online finance companies there are a plethora of options to choose from!

So, if you are scouting the web for the best home loan interest rate then you are at the right spot. RCD capital is your one-stop solution for all your mortgage requirements. To know more about the company visits the website www.rcdcapital.com