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Different Types of Loans

Here Are Some of the Different Types of Loans in Utah County

A Fixed Rate Mortgage is one in which the rate remains the same across the life of the loan. The advantage is that monthly payments will remain the same. However, if you lock into a higher interest rate, the rate will not change, even if interest rates go down in the future.

In my opinion, this is the best type of loan to get. A fixed rate mortgage offers more stability by keeping your payment the same for the duration of the loan. The lowest monthly payments come from 30-year fixed-rate mortgages. However, these mortgages also take longest to build up equity in your home. Experts recommend a 30-year mortgage if you are planning to stay in your home for several years and want a stable rate.

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Get a 15 Year or 30 Year Mortgage on Your Home?

Also common are 15-year fixed-rate mortgages. These loans spread the principal and interest across a 15-year period, after which you have paid off your loan. Because of the shorter term of the loan, you can build up equity in your Utah County home at a much faster pace. However, monthly payments are higher than for a 30-year fixed-rate mortgage.

I stongly recommend getting a 15 year loan if you can afford the payment. The saving are substantial compared to a 30 year loan. Just imagine paying off your home in half the time.

Experts recommend a 15-year fixed-rate mortgage if you are planning to sell your home in a few years and want a stable rate. If you can afford a 15-year mortgage you should do it. You will own your home in half the time as a 30 year mortgage. A 15 year mortgage offers a lower interest rate.

different types of loans 

Getting an Adjustable-Rate Mortgage in Utah County

Adjustable-Rate Mortgages, or ARMs as they are commonly called, are ones in which the interest rate changes periodically according to a fixed index. A 1-year ARM adjusts the interest rate annually. Monthly payments will increase or decrease along with the index rate, which is specified by the mortgage. Common indices include 1-year Treasury notes, Federal funds rate and the national cost of funds index. A margin -- usually one or two percentage points -- is added to the index rate.

Adjustable-rate mortgages include two caps on the amount the rate can increase or decrease. One cap limits the interest rate adjustment in any one adjustment period (e.g. one year in a one-year ARM), and the second cap limits the interest rate adjustment across the lifetime of the loan.

The advantage of an adjustable-rate mortgage is that monthly payments can decrease when the index goes down. However, monthly payments will increase when the index goes up. I am not familiar with anyone offering adjustable rate mortgages since the housing meltdown. I don't recommend this type of loan even if it becomes available in the future.

One way of shortening the length of your mortgage is to purchase a balloon mortgage. It works like an ARM or a fixed-rate mortgage for the first several years. After that period of time has expired, you owe a large payment -- sometimes the remaining balance on the loan. The advantage of this type of loan is that it keeps monthly payments low.

Experts recommend this type of loan for people who are planning to sell their homes within a few years, and can pay off the balloon payment from the proceeds of the sale of the house.

Adjustable rate mortgages are very difficult to find. This type of loan was very popular prior to 2006. The problem with an adjustable rate mortgage is that your mortgage can take a jump when your income has not. It is just to risky and this time of loan liens in the favor of the banks. I would suggest getting a 15 year fixed loan if possible.

Team Teasdale Realty will help you find an affordable loan and help guide you to a good lender for your next home



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