There’s a lot of complexity around a home mortgage, despite what the commercials or books may want you to think. If you’re trying to be an informed homeowner by exploring the different types of home mortgages — great idea! — then understanding those differences is going to be crucial to making the right decision for you!
Types of Home Mortgages
This helps spell out the main differences between the different types of mortgages out there, giving you the right starting point in how to choose the right approach for you.
- Low ratio mortgage: This is the standard kind of mortgage to consider. It means you must have 20% of the asking price as a down payment. This means that you are mortgaging 80% of the price.
- High ratio mortgage: With this particular kind of mortgage, you would have less than 20% of the price as a down payment, leaving more than 80% to be mortgaged. This often requires you to have some sort of insurance on your mortgage to minimize risk to the lender.
- Open mortgage: For shorter term mortgages, you can simply pay the lump sum of what you owe at any point in the mortgage repayment term with no penalties.
- Closed mortgage: In this kind of mortgage, regardless of the term length, you have to pay it back at the set rate determined by the contract and will be penalized if you try to pay back at a faster rate.
- Fixed rate mortgage: The interest rate on a mortgage would be “set in stone” for the entire mortgage term and payments, keeping it safe from market fluctuations and other factors that cause financial issues for those who are paying their mortgage long-term. This is often blended with an open mortgage.
- Variable rate mortgage: In this kind of mortgage, the rate would fluctuate along with the marketplace and other factors. The rate would be set, initially, based on the current interest rate. As the years pass and the mortgage is reviewed at set intervals (every 5 years, for example), the interest rate is adjusted to meet current rates. This is also the case if you decide, at these intervals, to change the length of the mortgage (either lengthening or shortening it).
- Reverse Mortgage: This is a national mortgage program insured by FHA – Federal Housing Administration designed for seniors age 62+ to access home equity without being required to take on a new mortgage payment. Learn more about how a reverse mortgage can work into your retirement plan by visiting HUD.gov or ReverseMortgageReviews.org.
These main types can be blended together (for example: an open, fixed rate mortgage, or a low ratio closed mortgage). This is part of what makes it so important to understand what you need and want for your mortgage.
When in doubt, check in with a professional
There’s never going to be anything bad about checking in with a professional in the niche. So, consider getting in touch with the top mortgage lenders in Colorado to make sure that you’re working from the right, top information. A little guidance is never going to hurt, after all, right?
Your home mortgage is going to be one of your biggest financial choices in your life, so you’ll want to make sure that you are making it with the proper information and advice to help keep you working toward a goal that is worthwhile for yo
