What Type of Loan is Right for You?
A breakdown of loans
Occasionally, you can "assume" a loan or take over a loan that the seller has been paying off. You should be careful in assuming any loan. Most loans have an “acceleration” or “due on sale” clause. This means that the lender can demand that the seller's loan be paid in full when the property is sold. If you wish to assume a loan, you should have your agent or attorney review all of the seller's loan documents and make approval by the lender a condition to your offer.
Most home loans that are available offer one of two interest rate structures.
A fixed rate loan offers a set interest rate, so that your monthly payment never changes. Some fixed rate loans are federally insured or guaranteed, such as a Veteran's loan or an FHA loan. These loans usually have a lower interest rate and require smaller down payments.
An adjustable rate mortgage loan, sometimes called an ARM, is a mortgage loan that can adjust the interest rate as the market’s rates change. The ARM's interest rate is tied to an index that reflects changes in the market rates of interest. Some indexes used are the Cost-of-Funds Index published by the Office of Thrift Supervision and the Federal Reserve Discount Rate. These loans usually have interest rates that are lower than the fixed rate loan interest. ARMs can be complicated. Make sure that you understand all of the terms of these loans before you agree to accept one.
Mortgage loans are available under many terms:
The “traditional” loan is 30 years.
Other loans are available for 15 years, 20 years or even 40 years.
Keep in mind that a monthly payment can vary greatly depending on the term of the loan — the longer the term, the lower the payment. The term of the loan can also affect the interest rate and the buyer’s ability to qualify for the loan.
