Secured Loans: How to Select the Best Mortgage
Secured Loans for Homes can Come in a Variety of Packages
There are a variety of secured loans from which to choose when obtaining a mortgage for your home. While some people may think a mortgage is a mortgage, in actuality, mortgages can come in packages with loan terms, interest rates, and fees that can vary substantially.
Higher Income Requirements Typically Apply to Mortgage Loans with Shorter Terms
In most cases, mortgages are available for period of 15, 20, or 30 years with an interest rate that is fixed. If you want to qualify for a 15 or 20 year mortgage then, your income usually has to be higher as payments for the shorter-termed loans will be higher than for a mortgage that runs for 30 years.
Thirty Year Loans with a Lower Interest Rate can Offer Savings Benefits
Choosing the shorter terms unquestionably puts you at an advantage in terms of saving interest. However, a 30-year secured mortgage loan with a lower interest rate can reap you rewards as well as you can invest any savings you accrue from the amount you save in interest into a stock account or mutual fund.
Savings are Significant on a Shorter Term Secured Mortgage Loan
Still, loans for shorter terms will provide you with substantial savings in the interest you will pay over the term of the loan. Generally, the total interest is well under half the amount in interest you’ll pay for a 30-year mortgage at the same rate.
Adjustable Rate Mortgages – Good Options for People who are Only Going to Live in their Home a Short Time
Secured loans in the form of adjustable rate mortgages are available as well, with the interest rate on the loan fixed for a period of six months to up to five years. After this period, the rate is adjusted every one or two years. Rates will typically increase by two to six percentage points. Therefore, when taking out the loan, make sure you can afford the worst case scenario with respect to your payment. Usually, these types secured mortgage loans are good choices for people who only intend to stay in their house for a short time and want to take advantage of a lower interest rate during the time that the fixed rate for the loan is in effect.
Balloon Mortgages – Shorter Term Loans
Balloon mortgages are another kind of secured loan that some people choose when purchasing a home. These loans generally come with a term that lasts five or seven years, at which time the balance is due and payable or must be refinanced. The short-term mortgages usually carry lower rates of interest than traditional types of mortgage loans.
FHA and VA Financing – A Good Option for People who Can’t Afford the Down Payment for Traditional Financing
Secured mortgage loans, such as those provided through FHA and VA financing, permit people to purchase homes who otherwise could not qualify for traditional financing. FHA loans require a lower down payment and allow for a larger debt-to-income ratio than traditional loans. VA loans, on the other hand, are designed exclusively for veterans and do not require any money down.
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