Many different types of mortgages are available on the market, and it can be challenging to decide which one is right for you. This blog post will discuss the most popular types of mortgages and how they work. We will also provide a brief overview of the pros and cons of each type of mortgage.
So, whether you are a first-time homebuyer or looking to refinance your current mortgage, read on for information on the different types of mortgages available to you.
Chattel Mortgage
You may have heard the term “chattel mortgage” and wondered what it was. A chattel mortgage is a loan used to finance the purchase of movable property, like a car or a boat. The loan is secured by the property, not by the borrower’s home or other real estates.
If you’re considering buying a recreational vehicle (RV), a chattel mortgage may be the right choice. The interest rates are usually lower than those on personal loans, and the loan can be spread over a more extended period. Chattel mortgage tips can be found online and in most financial magazines.
Fixed-Rate Mortgages
Another type of mortgage you might consider is a fixed-rate mortgage. As the name implies, with this type of mortgage, your interest rate will be locked in for the life of your loan. That means that no matter what happens with market interest rates, you’ll always know how much your monthly payment will be. Many people like this type of stability and predictability regarding their mortgage payments. One potential downside of a fixed-rate mortgage is that you might end up paying more interest over the life of your loan than you would with a variable-rate mortgage. That’s because, as we mentioned, market interest rates could go down after you take out your loan. If that happens, you’ll be stuck paying the higher interest rate for the life of your loan.
Adjustable-Rate Mortgages
An adjustable-rate mortgage, or ARM, has an initial low fixed-rate period. After that, your interest rate will adjust annually, but it is capped at a maximum amount, so you’ll never have to worry about huge increases. This type of mortgage works well if you plan on selling your home before the adjustable period starts.
An ARM might start with an interest rate of four percent for the first five years and then go up to six percent or higher, depending on the market. But let’s say your starting rate was three percent. Even if it increased to six percent after five years, your monthly payment would still be lower than it would have been with a 30-year, fixed-rate mortgage. And you’d have the opportunity to sell before your rate increases.
If you think interest rates will rise in the future, an ARM could save you money. For example, let’s say you plan to sell your home in five years and buy another one. You expect interest rates to be higher by the time you’re ready to buy, so you get an ARM now with a lower interest rate. When you sell, you’ll pay off the loan and won’t have to worry about the higher fixed-rate mortgage payments. So, which mortgage is the best for you? Well, that all depends on your unique situation. Hopefully, this blog post has given you a good overview of the different types of mortgages available and what to look for when choosing one. Do your research, consult with experts, and make the best decision for you and your family. Thanks for reading.