Fixed Rate Mortgages:
In this type of loan the interest rate and your mortgage monthly payments remain fixed for the entire loan period, and it is available for 40, 30, 25, 20, 15 years and 10 years. Generally, if the loan term is shorter then you can get it with lower interest rate. The most popular mortgage terms are 30 and 15 years. With the traditional 30-year fixed rate mortgage your monthly payments are lower than they would be on a shorter term loan. But if you can afford higher monthly payments a 15-year fixed-rate mortgage allows you to repay your loan twice as faster and it save more than half of the total interest cost of a 30 year loan.
The payments on fixed rate fully amortizing loans are calculated so that at the end of the term the mortgage loan is paid in full. During the early amortization period, a large percentage of the monthly payment is used for paying the interest.
Balloon loans:
Balloon loans are short-term fixed rate loans that have fixed monthly payments based usually upon a 30-year fully amortizing schedule and a lump sum payment at the end of its term. Usually they have terms of 3, 5, and 7 years. The main advantage of this loan type is that the interest rates on balloon loans are generally lower than 30- and 15- year mortgages resulting in lower monthly payments. The disadvantage is that at the end of the term you will have to come up with a lump sum to pay off your lender, either through a refinance or from your own savings.
Balloon loans with refinancing option allow borrowers to convert the mortgage at the end of the balloon period to a fixed rate loan based upon the outstanding principal balance if certain conditions are fulfilled. If you refinance the loan at maturity you need not be requalified, nor the property reapproved. The interest rate on the new loan will be a current rate at the time of conversion.
Related Keywords: Loans – Loan types in USA – Home Loans - FRM Loans, Balloon Loans
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