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Understand Your Loan Options

Not all home loans are the same.

Understand Your Loan Options

Understand Your Loan Options 1024 536 Vellum Mortgage

Not all home loans are the same. Three key choices are the loan term, or length of the loan, the interest rate type and the loan type. Knowing what kind of loan is most appropriate for your situation prepares you for speaking to lenders.

A loan “option” is always made up of three different things:

  1. LOAN TERM
  2. INTEREST RATE TYPE
  3. LOAN TYPE

Loan Term

30 Years, 15 Years or Other
The term of your loan is how long you have to repay the loan.

This choice affects:

  • Your monthly principal and interest payment
  • Your interest rate
  • How much interest you will pay over the life of the loan

Interest Rate Type

Fixed Rate or Adjustable Rate
Interest rates come in two basic types: fixed and adjustable.

This choice affects:

  • Whether your interest rate can change
  • Whether your monthly principal and interest payment can change and its amount
  • How much interest you will pay over the life of the loan

Loan Type

Conventional, FHA or Special Programs
Mortgage loans are organized into categories based on the size of the loan and whether they are part of a government program.

This choice affects:

  • How much you will need for a down payment
  • The total cost of your loan, including interest and mortgage insurance
  • How much you can borrow, and the house price range you can consider

Source: ConsumerFinance.org