Loans
Fixed Mortgages
This is the loan everyone has heard about. Our Parents and our Grandparents had these types of loans. In a nut shell this loan is set for a period of time, (15, 30, 40, and sometimes up to 50 years!) and the interest rate does not change for the life of the loan. Most every Bank Credit Union and Lender in the world has at least one of these programs to offer. Why? Because fixed loans are the bread and butter of the industry. This is where most of the money is made.
Pros
Made for those who don't plan on moving. It is considered a "safe" loan and the fixed rate never changes.
Cons
This loan is
not the cheapest solution and may not fit your specific situation. There may be better ways to pay down equity faster.
Adjustable Rate Mortgages
Most of us have heard of ARM or, Adjustable Rate Mortgages, as well. They are generally called adjustable or variable loans. This type of mortgage and has received a bad reputation, because they are often not understood when they are purchased. If you are a "Rate Chaser" this may be a better option for you. You can save a little more money with this type of loan when compared to a fixed mortgage.
An adjustable rate mortgage is any mortgage that the rate changes at some point during the loan. These loans are also found in 15, 30 and sometimes 40 year loans. The majority of these loans have a fixed period during the loan; this usually ranges from the first 1 to 15 years. After this period they begin to "adjust" with the market. (The majority is 1, 5, 7, 10, and 15 years fixed but there are plenty of different types out there!!) The other portion of this mix is how often and to what index these loans follow. They can adjust every month, 6 months, or up to one year. Remember this is just a general description there are more types out there! The list of indexes these loans can follow is a long one.
Pros
This is a cheaper form of loan and a good choice to help pay down other bills. Great if you only need 1 to 10 years!
Cons
Rate will adjust after the fixed period. May not be good for long term investment.
Negative Amortization Mortgages
These are also called Pay-Option, Neg-Am loans, or even Alternative choice loans. If it has a creative name it could be a one of these. The basic idea behind this loan is a low initial rate. The rate could be much higher than the rate you will be paying. The left over interest that isn't getting paid gets added to the loan.
Generally this loan will adjust every year until the rate catches up to where it should be. This gives you a payment cap, a maximum for the year that your minimum monthly payment will be. You will have fixed payments until the end of the year. They will go up like this every year until the current rate and the rate you are paying match. There are usually a few different payments that can be made on these types of loans. Included with your bill should be a 30 year fixed, and a 15 year fixed loan payment. With this loan it is possible to owe more than when you started. There are many different types of loans that could fall under this category.
Pros
This loan provides low payments in first few years and is great for paying off a few bills! It's also nice that you ou can always pay the full payment.
Cons
If you don't have a plan, you could find yourself upside down in this loan. Not a good long-term loan, as the payments increase each year.
Interest Only Mortgages
These loans can be the most devastating if they are not understood. They are also not for everyone out there. Mortgages are split into two different parts, principle and interest. Every loan has these two parts! (Unless a family member isn't charging you money to borrow from them.) In this type of loan you will only be paying one part, the interest. This is one of the cheapest loans on the market. If you are a good saver and have some good investments in mind, or ones that you are already using this is the loan for you!! The monthly payments are generally much lower than any other type of loan.
The catch to this loan is that you aren't paying on the principle. In other words you can't pay off the loan unless, you pay extra on the principle, or you are contributing extra to an investment and use the investment to pay down the principle. Make no mistake at the end of the loan 100% of the principle is due!! Not good when you haven't been preparing! Not a problem if you have. If you use the same amount of money that you would be spending on a 30 year fixed loan and apply the difference to the principle you can pay off your mortgage earlier than 30 years. You will not be using a cent extra to do this!!
Pros
Great way to pay off loan before 30 years and has a low monthly minimum. You can leverage equity and earn interest for yourself.
Cons
You need to be a disciplined saver or investor since 100% due end of loan if no principle paid.
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Loans are a key ingredient to effective credit repair. More often than not, we find that our new members are stuck with loans that can be renegotiated, or even replaced with a new loan that better fits their needs. Learn more about loan types and how Academy Credit can help you find the right loan for you by following the informative links below.
Loans Overview
What are the different types of mortgage loans?
What type of mortgage is best for me?
What do I need in order to get a mortgage loan?
Mortgage loan terms and definitions.
How does my credit score affect my mortgage?
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