Advantages and Disadvantages of Different Kinds of Mortgages
At this day, we can easily find different types of mortgage loans. Each type comes with its own advantages and disadvantages. It is better for you to know the advantages and disadvantages of the mortgage. By knowing the advantages and disadvantages, you can decide the best one that you need. At this time, I want to summarize the advantages and disadvantages of mortgages. I will show you the advantages and disadvantages of different kinds of fixed-rate mortgage and an adjustable-rate mortgage.
First, we will talk about the conventional fixed-rate loan. This type will allow you to get conventional P&I payment. This type will not suffer when the market rates rise. You do not need to worry when the market rates rise. But, there is no benefit when the market rates fall. This is one of the disadvantages of this type. The other disadvantage is the primary interest rate is higher than Adjustable Rate Mortgage (ARM). You should pay more for the primary interest rate. If you want to take this type, you should be ready to pay the interest rate that is much higher.
The second type is a fixed-rate balloon. This type also does not suffer if the market rates rise. You can stay calm though the market rates rise. The P&I payment is also predictable. You can easily prepare and manage your money for the payment. This type offers lower interest than a conventional fixed-rate loan. Lower interest is much loved by many people who want to take a loan. Some people shop around to get the place that can provide the lowest interest rates. This type also has several disadvantages, including the primary rate that can be higher than Adjustable Rate Mortgage and the payoff’s rates that can be unappealing. You will not get benefit when the market rates fall. Sometimes, you must refinance to pay off balloon.
The third type is interest-only loan. It is almost same with the other types. For the advantages, you will get expected P&I payment. You do not need to worry about increased rate at market.
When you find the market rates rise, you can stay cool. This type will allow you to pay lower monthly payment. Low monthly payment is loved by most of borrowers who have low income. If you can get mortgages with low monthly payment, you can manage your money for monthly payment and other needs. This type also owns several disadvantages. Learn the disadvantages before deciding to choose this type. As you won’t be affected by the market rates, you won’t get benefit if the market rates reduced. You should also pay the early rate that higher than ARM. Each year, you should renew, refinance, or repay the loan. You won’t get debt reduction by amortization.
The fourth type is biweekly loan. You could get much more benefits with this type. This loan will not suffer when the market rates increased. You can It also has predictable P&I payment. You could pay off the loan faster if you can make a 13th monthly payment. This loan also provides smaller payments so you should not be worried each month to repay the loan. The disadvantages of this type are quite same with others. You won’t get burden or benefit regarding the market rates. If the market rates fall, you remain in the same condition. You won’t get benefit. You might pay opening rate mush higher than ARM. You might also pay more payments each year.
On the category of adjustable rate mortgage, there are standards ARM, convertible ARM, and two-step mortgages. The first type of adjustable rate mortgage is standard ARM. Standard ARM will refuse if the market rates fall. This will give you more benefits. This type also offers lower initial rate than fixed rate. You do not need to spend much more for the initial rate. The one of the disadvantages is the payment will increase if the rates rise. You should be ready anytime when the rates rise. There is payment change sooner or later. The payment is not stable. You should manage your income well to overcome the changes.
The second type of ARM is convertible ARM. Like the standard ARM, convertible ARM also declines when the rates fall. This type could lock in low rate if the market rates fall. You could get benefit when the rates fall. Compared to fixed rate, convertible ARM provides lower initial rate. The payment will belong to the rates. Your payment will increase if the rates rise. This type requires higher initial rate compared to standard ARM. The payments will vary in market since there is no stability. There is big possibility of changes. You should also pay the fee to lock in when the rates fall.
The third type of ARM is two-step mortgages. The initial rate of this type is fixed for certain time. It offers lower initial rate than fixed rate. Its payments will decline if market rate falls. For the disadvantages, the payment will increase if the market rates rise. The payment will fluctuate along with the market. There is some risk since the upcoming rate is indefinite.