Purchasing a new home for the first time can be a complex process that requires a lot of research to be done prior to the actual purchase. A majority of first-time buyers must get a mortgage loan in order to purchase their home. There are several different types of mortgage loans available to Louisville residents. It is important that first-time buyers understand the qualifications behind these loans and which option would work best for your individual situation. Read on to find out more details on the different types of loans available to first-time home buyers.
Fixed Rate Mortgage
A Fixed Rate Mortgage is a type of mortgage that has a fixed interest rate for the entire term of the loan. The interest rate for the mortgage is known when the loan is originated. This allows home buyers to calculate their budget over time and manage their finances much easier than if they were dealing with a mortgage payment with a fluctuating interest rate. This is an excellent mortgage plan for first time home buyers because it allows the buyers to figure out how much home they can truly afford over time.
One Year Adjustable Rate Mortgage
This type of mortgage is self-explanatory, meaning that the annual rate of the loan changes year after year. The rate is based on the movements of the published index as well as a specified margin, which is chosen by the lender. This type of mortgage is preferred by buyers who do not have a lot of cash set aside to pay up front. That is because they usually have a very low initial cost.
10/1 Adjustable Rate Mortgage
A 10/1 ARM is a ten year adjustable rate mortgage. With this type of mortgage, the rate stays the same for the initial ten years. In the eleventh year, the mortgage converts to an adjustable rate mortgage and the rate changes on an annual basis. If a normal payment schedule is followed, the loan can typically be paid off in thirty years.
A 5/25 mortgage plan, also known as a balloon payment plan, offers a low, fixed interest rate for the first five years that you own the home. However at the end of the five year term you are required to either pay off the remaining balance or refinance your loan. The monthly payments are calculated as if the loan was a 30 year fixed rate plan. This allows you to have a lower interest rate and more affordable payments.
These loans are commonly referred to as balloon payments because of the large amount of the remaining balance that comes due after five years have passed. Instead of paying out such a large amount, most people who choose a 5/25 mortgage plan tend to refinance their loan for another 25 years instead.
There are many other types of mortgage loans available to first-time home buyers in Louisville, Kentucky. To find out more about the options that are available to you, contact a lending group or mortgage center in your area for more information.