Quick Term Mortgage Types

Choices Within the Choice

So you've decided that you don't want to spend nearly half your life expectancy or more to pay off your home and are opting for a quick term loan instead. That's good, but there are still options for you to consider and decide on. What type of loan do you want, a fixed rate or adjustable rate? Perhaps your credit isn't so great so you think you will want an 80/20 loan. Or maybe you're a veteran and have access to the V.A. loan, is it worth it? Here is some information on the various loan types, all of which can be secured at the term length of your choice.

Conventional Fixed-Rate Mortgages

The fixed rate mortgage is the oldest of all mortgage types, it is most assuredly what your grandparents used to finance their home and their parents before them. The original mortgages were simply an agreement between a landowner and a buyer to pay for the house at a certain amount per month for a certain period of time (much less than 30 years, usually), at which time the owner would give the deed to the land to the home buyer and their deal would be concluded. As the price of homes began to grow, and deals between men, not quite so honorable, more people turned to banks in order to get the money to pay the landowner off outright. This then left the buyer in debt to the bank, which would charge the amount of the property plus a flat interest fee over the life of the loan. This interest fee did not change over the life of the loan, which meant that the borrower had a consistent payment amount every month for as long as he was paying on the house.

Today's quick rate loans that have a fixed rate operate in much the same way: you decide on a home, ask the bank for a loan, and if you are approved, the bank pays the original homeowner their asking price and sends them on their merry way. You then are left to pay back the bank over the term of the loan, a fixed amount based on an amortized schedule and how much of an interest rate you settled on.

Adjustable Rate Mortgages

Adjustable rate mortgages were the second type of loan to come onto the mortgage industry scene. They are designed to let a homebuyer get used to their home while paying a very low interest rate and small amount for awhile, and after a predetermined period of time the interest rate for the loan will begin to 'float' or change based on market conditions. With this changing interest rate comes a change in your mortgage payment amount as well. The Adjustable Rate Mortgage (or ARM), is considered to be largely responsible for the housing crisis that began in 2008. Many home owners, who were barely making their mortgage payments at the low, introductory rate were slammed when the interest rate began to float and moved substantially upward, in some cases doubling the monthly mortgage payment amount. Unable to pay this amount, many home loans went into default. If you choose an adjustable rate quick term loan, be sure you have plenty of cushion space in your income levels to pay a higher mortgage than what you start with - up to 50% more is a safe estimate.

FHA/VA Mortgages

FHA or VA Loans are government-backed loans that offer a level of security to the lender because the government offers to insure the mortgage against default. The VA loan is offered to members of the U.S. Military in active duty, separated with anything other than a dishonorable discharge, or retirees. The FHA loan is offered to first-time home buyers to help them manage the expense of their home. One advantage to getting one of these loans on a quick term loan basis is that paying quickly very quickly gets you beyond the 20% equity level at which the PMI (private mortgage insurance) required with these loans, will go away.