Mortgages and Home Loans

Confused about different types of mortgages and home loans? We can help you learn about the variety of home loans for the different types of borrowing. Here’s a brief summary of the different types of home loans:

Purchase Home Loans:

Buying a home typically involves borrowing money from a lender. The first position home loan taken out on a property is called the first mortgage. When you take out a home loan on a property, you agree to pay the lender back over a certain period of time and pay interest charges on the loan over that period of time.

There are several types of first mortgage home loans, including:

• Fixed Rate - The interest rate you pay is fixed for the life of the loan.
• Adjustable Rate - The interest rate you pay is variable. This means that the interest rate changes – usually after a set period time – with a rate cap on how many points it can increase above the original amount over the term of the loan.
• Combination Rate (Fixed Period Adjustable Rate Mortgage) – The interest rate is fixed for an initial period of time. After the fixed rate period, the rate becomes adjustable. This allows homeowners to enjoy the stability of a fixed principal and interest payment for the first 3, 5, 7 or 10 years.

Second Mortgage Home Loans:

The second mortgage, also referred to as a home equity loan, is usually a second loan taken out on a property. This loan option allows homeowners to use the available equity in their home as collateral to guarantee the loan will be repaid. The home equity is the difference between the current market value of the home and the amount still owed on it.

There are several types of second mortgages, including:

• Fixed Rate Second Mortgage - The interest rate is fixed and usually linked to long-term interest rates. These loans are usually 15 years in length.
• Home Equity Line of Credit (HELOC) - The interest rate is variable and usually connected to the prime rate. Usually, borrowers access HELOC funds as needed and borrowing can usually last up to five years.

Refinancing:

Many homeowners refinance to lock in lower interest rates, change the terms of the loan (from one type of mortgage to another), to get cash to consolidate debt, pay for a home remodel and more. ** With a cash out refinance loan, you can refinance your mortgage for more than you currently owe (up to the available equity you have in your home) and get cash back for the difference.

** Refinancing or taking out a home equity loan or line of credit may increase the total number of monthly payments and/or the total amount paid when compared to your current situation.