Combination Mortgage Loans Could Be the Answer for You

Combination Mortgage Loans Could Be the Answer for You- 150x150Becoming a home owner is one of the main goals in every American’s life. But to achieve this goal, you will probably need to borrow money, and that can be a pretty nerve-wracking process. You want to make sure that you are getting the best deal on your mortgage loan, but that can be hard with all of the mortgage loan options that are available today. One of the ways in which you can save money is the combination mortgage loan.

A combination mortgage loan allows you to combine two loans, preferably from the same lender in order to pay off your mortgage. Typically, the first loan will represent 80% of the property’s value, while the second one will be 20% of the home’s value. The smaller loan can be used as a down payment or to finance the construction costs of your new home, while the second will be used to pay off the first loan, and will become the permanent mortgage loan on your home.

Benefits of a Combination Mortgage Loan

Combination loans feature a few benefits over regular mortgage loans, but whether this type of loan is your best choice will depend entirely on your financial situation. Here are the benefits that a combination mortgage loan has to offer:

  • You avoid paying private mortgage insurance. With conventional loans, you will be required to pay private mortgage insurance (PMI), which can increase the overall cost of the loan significantly. The cost of the mortgage insurance can sometimes even exceed the cost of the second mortgage loan.
  • You don’t have to make a down payment. Even though the terms are different from one lender to another, the two loans generally serve the same functions: the first mortgage loan will pay off the mortgage, and the second one will cover the down payment.
  • You’re able to get lower interest rates. Each one of the individual mortgage loans in the combination loan will receive a different interest rate. The interest on the larger loan will be smaller, usually making your total interest rate smaller than on a conventional loan.

Disadvantages of a Combination Mortgage Loan

Even though combination mortgage loans can be very beneficial, they are just one of the many types of loans that you should research before choosing. Combination loans might sound good at first, but if you don’t thoroughly research the disadvantages, as well, you could quickly end up regretting your decision.

When paying your mortgage through a combination loan, you will have to keep track of two separate monthly payments, to two different lenders, in some cases. This increases the chance that you will miss a mortgage payment which will hurt your credit. Also, there is a chance that the interest rate for one of the loans will be high, which could increase the overall cost of the loan.

Combination mortgage loans are generally a great choice when you are looking to avoid paying private mortgage insurance, but, as with any mortgage loan, you must exercise caution when choosing this type, and avoid making your decision based only on advantages. Your financial situation and the loan’s disadvantages should also play a big part in your decision. The only way in which you can be sure that you are making the best choice is by being fully aware of where you stand financially and doing your homework.

10, 20, 25, 40, 50: The Mortgage Loan Term Options You Don’t Always Hear About

Mortgage Loan Term Options You Don't Always Hear About- 150x150Probably the most important aspect of a mortgage is its term, or the number of years that will be needed for you to repay the loan. The mortgage loan term is very important to a home buyer, as it will influence the amount that you will have to put down as a down payment, your monthly payment, and the interest rate that you are going to receive from your lender. Of course, choosing between a short and a long term mortgage loan will be determined by your budget, financial situation and plans for the future.

The most common are the 15 and the 30-year mortgage loans. But you should know that there are many other mortgage loan options out there, such as the loans that can be repaid in 10, 20, 25, 40, or 50 years.

[Compare the latest mortgage rates from dozens of lenders, updated daily.]

Things to Consider Before Deciding Which Term to Choose

Of course, what may be the right choice, in regards to mortgage loan terms, for someone won’t be the same for you. The most important factor in determining which term is your best choice will be your financial situation. So, before even starting to shop around for a mortgage loan, you should take a close look at your budget. Here are some other important factors that should help you decide what type of loan term, short or long, you should go with:

  • The monthly payment. Because it extends over a longer period of time, longer-term mortgage loans will result in a lower monthly payment. This can make your life much easier, but, over time, you will pay more than on a short-term loan.
  • The interest rate. Short-term mortgage loans feature lower interest rates than long-term mortgage loans. In addition to that, the longer the term, the more interest you will pay over time, which will drive the overall cost of the loan much higher than of a short-term loan.
  • Your future plans. If you plan on moving a few years after taking out a mortgage loan, then the savings that you would make by paying a smaller interest rate on a short-term loan might not be too valuable for you, and a longer-term loan with a smaller monthly payment might be a better choice.

Five Uncommon Mortgage Loan Term Options

When thinking about a mortgage loan, most people automatically assume their only choices are 15-year mortgage loans and 30-year mortgage loans. Because there are so many potential home owners with different financial situations, a few other mortgage loan term options have become available over time. Let’s take a look at some of them:

  • The 10-year mortgage loan. This type of mortgage loan is tailored mostly for people with high income, who don’t mind making a much higher monthly payment, while saving money in interest. Taking out a 10-year mortgage loan is a smart move that will possibly save you a lot of money over time, but it’s also the riskiest, because 10 years is still a long time, in which a lot can happen to you financially.
  • The 20 and 25-year mortgage loans. Great for people who don’t have the available budget to make the monthly payment on a more traditional 15-year mortgage loan, or don’t want to make a monthly payment for the next 30 years, with a 30-year mortgage loan. These mortgage loans are also great for refinancing. With current mortgage rates low right now, refinancing a 30-year loan into a 20 or a 25-year loan can result in a slightly larger, or even the same monthly payment as before, but with a few years less to pay.
  • The 40-year mortgage loan. With a longer period of repayment than the traditional 30-year loan, this type of mortgage loan features a smaller monthly payment, allowing you to buy a more expensive home. Unfortunately, the 40-year loan comes with a larger interest rate, which will increase the cost of the loan over time.
  • The 50-year mortgage loan. This type of loan features the lowest monthly payment of all types of loans, so it is attractive to people with lower incomes. Considering the fact that half of all first time home buyers in the United States are around 30 years old, individuals who choose a 50-year mortgage loan will only pay off their home when they are 80 years old. In addition, the interest will be higher than on a 30 or 40-year mortgage loan, and equity will build extremely slowly.

The mortgage loans described in this article may not be so popular, but they sure have their place. It ultimately depends on each individual’s budget and plans, so you should take them into consideration, whether you are a first time home buyer, or you are looking for mortgage refinancing options.