With so many mortgage loan options currently available, choosing the best one for your needs can be confusing. The following are five of the most common mortgage loans. We’ll compare mortgage loans and break each one down to discuss the things that have the most impact on your selection.
Explore BR Telco Mortgage Loan Options
Fixed-Rate Mortgages
Fixed-rate mortgages are the most common type of home loan for a good reason. They are simple to understand, predictable, and make comparison shopping easy.
As their name implies, fixed-rate mortgages have interest rates that are fixed or locked-in during the loan origination process. This lets you pay the same amount each month for the duration of the loan. This helps with budgeting, and you don’t have to worry about interest rates increasing sometime in the future like with adjustable-rate mortgages.
The two most common terms for fixed-rate mortgages are 15 and 30 years, although different terms are possible. Origination fees are usually between 0.5% and 1%.
Some lenders offer the option to pay a fee called a “point” to reduce the interest rate you pay. One point may cost 1% of the mortgage amount, and each point will lower the interest rate by 0.25%. Closing costs for these loans are between 3% and 6% of the mortgage amount.
Jumbo Mortgages
Jumbo mortgages are home loans that do not conform to the guidelines of Fannie Mae and Freddie Mac. They are typically for amounts over $548,250, but the amount can be higher in some housing markets.
Interest rates on jumbo mortgages can be either fixed or variable, and the rates are oftentimes higher than other home loans. The loan origination fees are similar to standard fixed-rate mortgages, but the closing costs are usually higher. Points for jumbo loans are priced the same as standard fixed-rate loans and reduce the interest rate by the same amount.
Jumbo mortgages typically require down payments of 20%, although some lenders will go as low as 10%. An important thing to consider with jumbo mortgages is that lenders often require you to have certain cash reserves to qualify. This is necessary to make sure you can make high monthly payments.
Land or Lot Loan
Loans for land are structured similarly to standard fixed-rate loans, although they are less common. These loans are considered riskier because land is harder to sell than finished homes. Also, it may not be possible to build on some tracts of land.
To qualify for a land loan, you will need strong credit scores and high down payments. These loans are often divided into three different categories: raw land, unimproved land, and improved land, and the FDIC determines the minimum down payment requirements:
- Raw land: 35%
- Unimproved land: 25%
- Improved land: 15%
Interest rates for land loans can be either fixed or variable, although they are usually higher than mortgages for homes because they are riskier. The average closing fee for these loans is typically between 2% and 5% of the loan amount.
Second Mortgage
A second mortgage is a loan that is taken out on a home that already has a loan, and the equity you have in your home is used as collateral. These are very flexible loans that can be used for many different purposes. The qualifications for being approved for a second mortgage are similar to those of your first mortgage.
A second mortgage is different from refinancing your home where you acquire a new mortgage to replace your existing mortgage. With a second mortgage, you have two mortgages at once.
These loans have fixed interest rates. Both the origination and closing fees for second mortgages are similar to standard fixed-rate mortgages.
Home Equity Line of Credit
A home equity line of credit (HELOC) is another type of loan that can be used for many different purposes. It is backed by the equity in the home you currently own. If you have $60,000 worth of equity in your home, for example, you may be able to qualify for a HELOC up to that amount.
These loans are different from conventional mortgages in how the money is distributed. Instead of receiving a lump sum and then repaying it over time, you have a credit limit that you can draw from as needed. Similar to a credit card, the credit limit is replenished by paying back the money that was borrowed.
Most HELOCs have variable interest rates. Both the loan origination fees and closing costs are usually significantly lower than traditional mortgages.
Which Mortgage Loan Should You Choose?
Different mortgage loans serve different purposes. A few questions to ask when comparing your options include:
- Do I want predictable monthly payments each month?
- Have I saved enough for a down payment?
- Can I afford the origination and closing fees?
- Do I want to buy points to lower my interest rate?
Another important thing to consider when financing a home is the term. The longer you take to repay a loan, the more you will pay in interest. The interest savings in selecting a 15-year loan instead of a 30-year loan, for example, can be significant.
To help you select the best mortgage, you can use a mortgage calculator to enter the loan amount, interest rate, terms, and other information to see which option makes the most sense for your budget and needs.
Compare Mortgage Loans with Baton Rouge Telco
Selecting the right mortgage is an important part of the home buying process. But it’s also important to select the right lender to maximize savings and to make sure the lending experience is smooth and efficient.
Baton Rouge Telco offers a variety of home loan options. Our interest rates are competitive, we don’t require private mortgage insurance (PMI), and all loan decisions are made locally for quick approvals and closings.
Click below to learn more and start comparing mortgage loans today!
