Different Financing Options Available to Home Owners
The first step towards having a good standard of living is buying a house. Once you decide to own one, you should consider getting a mortgage loan. You should also look at various financing options and the different ways to go about the purchase.
The following are some of the most basic mortgages you can find in the market today.
- Fixed - This is the most common and oldest form of loan. Both the monthly payment and the interest rate are fixed, so you always know how much you should set aside for your payment every month. Despite inflation, these things will remain the same until you pay off the entire amount. This is therefore a very safe option.
- Flexible Rate - During periods of high interest rates and increasing prices, this scheme is preferred by many for its variability. This is because even if the money is borrowed during the not-so-good times where interests are really high, one can take comfort in the fact that the rates could deflate when the economy recovers. This type is ideal for people who have a steady annual rise in income. This is also beneficial for borrowers when economic conditions are good.
- Balloon Mortgage - This type has fixed rates. It is usually a short-term finance option, which gives a buyer a standard monthly installment to be paid with a balloon payment for the balance. A disadvantage of this financing option is that there is little equity build-up for the property.
- Assumable Mortgage - In this type of arrangement, the outstanding debt and its terms can be easily transferred to the buyer from the current owner, enabling the former to obtain the property without having to apply for his own mortgage. This is very ideal to get if the current interest rates are high because buyers can assume the seller’s loan, which was made when interests are low, and use it to finance the purchase of the house.
- Interest only - In this type, the interest amount is paid off first before the principal amount. This could be convenient for the buyer as lesser amount is to be paid every month.