Common Types of Real Estate Loans

Type of Loans
There are many types of mortgage products available for the investment properties home buyer. You may wish to talk with a mortgage professional to help you find which mortgage loan best fits your needs for investment properties. The following are descriptions of the most common types of mortgages.

30 year fixed rate mortgage: This is and has been the most common type of mortgage for years. It hasn’t changed over the years and is still the safest and most conservative way to buy a house. This is a 30-year loan where the interest rate will never change. As a result, your monthly payment will stay the same (except for taxes and insurance which always go up over time.) This is generally the best way to go unless you are sure that you will move in a few years. If the market rates for mortgages go way down after you get your loan, don’t worry. You can always refinance.

15 year fixed rate mortgage: This is the same as above, except the loan is paid off sooner. You will own your home in 15 years, but on average will pay 20-35% more every month (versus a 30-year mortgage).  Many people choose this loan even if it means buying a smaller house. However, keep in mind that you can always pay off your house quicker by paying more each month regardless of term.

10 year fixed rate mortgage: Similar to the 15 years fixed; however, this loan is paid off in 10 years. You will own your home in 10 years, but on the average will pay 50-75% more every month (versus a 30-year mortgage).

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3/1 year adjustable rate mortgage: This is a 30-year loan where the interest rate is fixed for the first 3 years, but then changes to a 1 year adjustable for the last 27 years of the loan. This is good if you know you will move in 3 years.  Also, some people do this if they want to increase the amount they can borrow by paying a lower interest rate up front.

5/1 year adjustable rate mortgage: This is very similar to the 3/1 adjustable. This is also a 30-year loan where the interest rate is fixed for the first 5 years and then changes to a 1 year adjustable for the last 25 years of the loan. This offers a lower interest rate than a regular fixed loan but not as low as a 3/1 or a 1 year adjustable. You should consider this loan if you know you will stay less than 5 years.

7/1 year adjustable rate mortgage: This is also a 30-year loan where the interest rate is fixed for the first 7 years and then changes to a 1 year adjustable for the last 23 years of the loan. Again, you will pay a little less in interest than with a regular fixed mortgage but not as low as a 1-year adjustable mortgage.

10/1 year adjustable rate mortgage: This is a 30-year loan where the interest rate is fixed for the first 10 years and then changes to a 1 year adjustable for the last 20 years. If you choose this loan you will have a long period of fixed payments with a lower interest rate. Consider this loan if you plan to stay less than 10 years.

For more information on ARM mortgages please read the U.S. Government publication at https://publications.usa.gov

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