Homeownership is widely seen as the gateway into the middle class and the ideal way to build wealth. This was true in the past, and it’s still true today. However, the prices of homes are on the rise and mortgages can seem out of reach for many. If you’re wondering whether or not getting a mortgage is right for you, it’s helpful to understand the different types of mortgages that are available. While there are many different mortgage types overall, there are three basic models for mortgage payments.
The Three Types of Mortgages
Conventional mortgages are the type that you’re most likely familiar with. You place a down payment, receive the loan, and then make monthly payments on the value of the mortgage as well as the interest. While the ideal down payment is 20% or more of your home’s value, this isn’t the norm that it once was.
Changes to loan policy mean that it’s possible to get a conventional loan with as little as 3% of the down payment, and the average down payment is only about 7% of the mortgage value. It’s possible to get conventional mortgages for a wide variety of timescales, ranging from ten to thirty years. There are also sub-types of mortgage loans, such as Jumbo Loans which are particularly high-value and carry a greater interest rate.
Taking out a mortgage is a major financial decision that can take up much of your month-to-month income. If you’ve been saving for a large down payment, then you might feel that your choice is either taking out a mortgage or continuing to make investments and build your savings. However, taking out an interest-only mortgage can confer the advantages of mortgages and homeownership without sucking up your income.
When you take out an interest-only mortgage, you spend five to ten years only making interest payments on the loan rather than paying down the debt itself. The downside is that you’ll end up paying far more in interest by the time you’re a full homeowner. However, you’ll enjoy enormous short-term gains during the interest-only period; making successful investments from these gains could result in a net profit.
Adjustable-rate mortgages mostly function along the lines of a classical loan, with one key difference. While a conventional mortgage has a fixed interest rate that’s set in stone, an adjustable-rate mortgage has a floating interest rate pegged to economic changes. Whether such a mortgage is preferable or not depends on how interest rates change in the future, which no one can know as a matter of certainty. While taking such a mortgage might save you money, it might also cost you.
Other Mortgage Types
Besides these three basic models of mortgages, there’s a variety of other special mortgages such as down-payment free VA loans. Most people don’t qualify for such a loan, but it can be life-changing if you do. You can inquire about the different types of mortgages and find out which one is right for you with the help of Potempa Team.
Find Out More with Potempa Team
Potempa Team is a group of mortgage experts who have the skills and expertise you need to be able to buy your dream home. Get in touch today to find out what your options are.