A Bounty of Repayment Options
Graduated payment mortgages have payments that start low and gradually increase at predetermined times. A lower initial payment will allow you to qualify for a larger loan amount. The monthly payments will eventually be higher in order to catch up from the lower payments. In fact, your loan will be negatively amortizing during the early years of the loan, then pay off the principal at an accelerated pace through the later years.Lenders offer different GPM payment plans, which vary in the rate of payment increases and the number of years over which the payments will increase. The greater the rate of increase or the longer the period of increase, the lower the mortgage payments in the early years. For example, if you have a graduated payment mortgage with a loan amount of $60,000 and a interest rate of ten percent, the first year’s monthly payment will be $400.22. After a gradual increase, the seventh year’s payments will be $574.57 and remain there for the duration of the loan.
Another factor in your monthly repayment is the interest rate. A temporary buy-down is the type of loan with an initially discounted interest rate which gradually increases to an agreed-upon fixed rate usually within one to three years. An initially discounted rate allows you to qualify for more property with the same income and gives you the advantage of lower initial monthly payments for the first years of the loan when extra money may be needed for furnishings or home improvements.
To reduce your monthly payments during the first few years of a mortgage you make an initial lump sum payment to the lender. If you do not have the cash to pay for the buy-down, the lender can pay this fee if you agree on a little higher interest rate.
If you don't plan to stay in your house for at least 5 to 7 years, it will be reasonable to consider an Adjustable Rate Mortgage, Balloon Mortgage or Two-Step Mortgage. ARMs traditionally offer lower interest rates during the early years of the loan than fixed-rate loans. A Two-Step Mortgage will give you a lower interest rate than a 30-year mortgage for the first five or seven years. A Balloon Mortgage offers lower interest rates for shorter term financing, usually five or seven years. Because of a lower interest rate it is easy to qualify for these type of mortgages. However don't accept the ARM unless you can afford the maximum possible monthly payment.
The right type of mortgage primarily depends on how long you will be living in the house and the amount of monthly payment you can comfortably afford. With a variety of different loan programs available, it is important to choose the type of loan that will best suit your needs.
