Mortgages are one of the most popular types of loans for a reason. They offer homeowners the ability to purchase a home by borrowing money from a lender and then repaying that loan over time.
There are many types of mortgages available, each with its own set of benefits and drawbacks. In this article, we will discuss the different types of mortgages and how to choose the right one for your needs.
Conventional loan
A conventional loan is a mortgage that is not backed by the government. These loans are typically available through banks and credit unions.
They usually require a down payment of at least 20% of the purchase price of the home. A conventional loan may have a fixed or adjustable interest rate.
You can calculate this yourself with an interest-only loan calculator in NZ and find your numbers. A conventional loan is perfect for those who have good credit and can afford a down payment.
If you want to buy a home with a conventional loan, you will need to have good credit and show that you can afford the monthly payments.
If you are someone who is self-employed or has a lot of debt, you may have trouble getting approved for a conventional loan.
On the other hand, if you want to buy a more expensive home, you may need to get a conventional loan because you won’t be able to get approved for a government-backed loan. The reason for this is that government-backed loans have limits on how much you can borrow.
Jumbo loan
A jumbo loan is a mortgage that exceeds the conforming loan limits set by the government. These loans are typically available through private lenders.
Jumbo loans usually have higher interest rates than conventional loans because they are considered to be riskier.
They also usually require a down payment of at least 20% of the purchase price of the home. If you are looking to buy a home that is more expensive than the conforming loan limits, you will need to apply for a jumbo loan.
Consider this option if you have good credit and can afford a higher interest rate. Be careful, though, because if you default on a jumbo loan, the lender may not be able to sell your home for enough money to pay off the loan.
Sometimes, the lender may require you to have private mortgage insurance (PMI) if you make a down payment of less than 20%.
Also, many people take a jumbo loan and then refinance it after they have built up equity in their home.
Government-insured loan
A government-insured loan is a mortgage that is backed by the government. These loans are available through the Federal Housing Administration (FHA), the Veterans Administration (VA), or the Rural Housing Service (RHS).
Government-insured loans usually have lower interest rates than conventional loans because they are considered to be less risky.
They also often have lower down payment requirements, making them a good option for those who cannot afford a large down payment.
If you are looking for a loan with low-interest rates and flexible terms, consider a government-insured loan. It is important to note that you will need to meet the specific requirements of the program to qualify.
Usually, this includes things like having a good credit score and proving that you can afford the monthly payments.
Fixed-rate mortgage
A fixed-rate mortgage is a loan with an interest rate that remains the same for the entire term of the loan. These loans are typically available for terms of 15 years or more.
The benefit of a fixed-rate mortgage is that you will always know how much your monthly payments will be. This can make budgeting for your mortgage easier.
If you are looking for a loan with predictable monthly payments, a fixed-rate mortgage is a good option. Also, it is a good idea for people who want to buy a house and stay in it for a long time.
This is because you will not have to worry about your interest rate going up in the future. If interest rates go down, you will still have the same monthly payment. Think about whether you want the security of a fixed monthly payment when choosing this type of loan.
Adjustable-rate mortgage
An adjustable-rate mortgage is a loan with an interest rate that can change over time. These loans are typically available for terms of five years or less.
The benefit of an adjustable-rate mortgage is that you may be able to get a lower interest rate than you would with a fixed-rate mortgage.
This can save you money over the life of the loan. However, the downside is that your interest rate could go up in the future, which would increase your monthly payments.
If you are looking for a loan with a lower interest rate, and you are comfortable with the risk that your payments could go up in the future, an adjustable-rate mortgage may be a good option for you.
There are a variety of different types of mortgages available. Each type of mortgage has its own set of benefits and risks.
It is important to carefully consider your options before choosing a loan. Be sure to compare interest rates, monthly payments, and terms before making a decision. Choosing the right mortgage can save you money and help you achieve your homeownership goals.