Mortgage Options Available to the Home Buyer

Mortgages have developed to compensate for shifts in market behaviour as consumers spend more money and depend more on credit. In reality, mortgages have become more flexible, allowing homebuyers with no or bad credit to purchase a home. Mortgages are now available in a variety of ways, with some mortgages extending payments out beyond the standard 30-year rate and stretching as far as 50 years, making home ownership possible for those who would never have imagined it before. You may want to check out Scarborough Mortgage Broker for more. The three most popular forms of mortgages are as follows:

Mortgages with Fixed Interest Rates

The fixed-rate mortgage is the most prevalent, and perhaps the most famous, of all mortgages. These mortgages are typically offered in 30-year terms, but they are now often available in 10-, 15-, 40-, and even 50-year terms. A fixed-rate mortgage is the most common since it provides borrowers with a fixed, non-changing interest rate and payments that remain constant for the lifetime of the loan. You know exactly how much you’ll be paying each month.

Mortgages that only pay interest

Interest-only mortgages can sound appealing, but don’t be fooled by the term. For these types of mortgages, you pay more than only interest, but an interest-only mortgage allows you to delay the principle payments by paying just interest for a set period of time, normally five or ten years. Following that point, the mortgage is amortised for the duration of the loan, causing monthly payments to rise, often dramatically.

Interest-only mortgages have their uses; they are a reasonable option for homebuyers who know they will be making money later in their careers, or for others who plan to make principle payments in addition to their mortgage payment. The disadvantage is that the majority of interest-only mortgages have a higher interest rate. When homebuyers take out interest-only mortgages and can afford the interest-only payments at the start of the loan, but don’t prepare for the higher monthly payments that come at the end of the interest payments, problems may occur, and may have largely led to the current housing crisis.

Mortgage financed by the Federal Housing Administration

FHA loans are mortgages that are guaranteed by the Federal Housing Administration. FHA mortgages are usually available to homebuyers who cannot afford a down payment, allowing for a lower or, in some cases, no down payment on the purchase of a home. Since good credit is not needed, and the FHA deals with homeowners who don’t have a lot of money to deal with up front, these mortgages are usually used by first-time homeowners.