There are many different types of loans available to those looking to purchase a new home or to refinance their current mortgage. At InterLinc, there is no one-size-fits-all package. Every borrowerâ€™s situation is unique, so we handle each loan application on a personalized level. Weâ€™re here to give you confidence and flexibility for your financial future.
Here are a few of the most common types of loans for residential properties:
Purchase loans are mortgages used to finance the purchase of a home. Whether you are buying a single-family home, townhouse or condo, if you are not paying cash, you’ll need a purchase loan.
Refinance loans are used to replace the current financing for a residential property. Borrowers frequently consider refinancing a loan to convert some the equity built up in their home into cash, reduce their mortgage rate, change the type of financing (such as moving from an Adjustable Rate Mortgage to a Fixed Rate loan) or reduce the length or term of their loan.
Fixed-Rate Mortgages (FRMs)
Fixed-rate mortgages (FRMs) have a set or “fixed” interest rate that does not change during the life of the loan. Because the rate does not go up or down, the combined principal and interest (P&I) payment is consistent for the life of the loan. For borrowers who want a stable payment and expect to remain in their home for at least 3-5 years, a fixed-rate loan may be the best option.
Fixed-rate loans generally have a loan term or length of 10, 15, 20, 30 or even 40 years. A loan with a shorter term will usually have a lower interest rate, but the payment will be higher since the loan amount is paid back over a shorter period of time. If you think you may want to pay off your loan earlier, but don’t want to commit to a higher monthly payment, consider a 20- or 30-year loan term; you can always pay extra principle to pay off the loan faster.
Interest-only loans allow a borrower to pay only the interest due on their loan for a certain period of time, often 3-5 years. Once the interest-only period ends, the borrower must begin to pay principal and interest payments or refinance the loan. Interest-only options are available for both adjustable-rate and fixed-rate loans.
Home Equity Loans
Home equity loans are used to access the equity or stored value in a borrower’s home. These loans are structured either as a Home Equity Line of Credit (HELOC) or an adjustable-rate or fixed-rate home equity loan. With a HELOC, the borrower can access the line of credit for cash needed for home improvements, college expenses or other costs that may vary over time. The payment on the HELOC changes depending on the outstanding balance of the loan and the current interest rate. With a home equity loan, the borrower receives a lump sum payment at closing, and the payments, unless changed in connection with a change in the interest rate on an adjustable-rate loan, remain the same regardless of the loan balance.
Balloon loans have a lower principal and interest payment, based on a 30-year amortization for the term of the loan, which are often 7- 10 years. This allows the borrower to pay a lower payment than a traditional fixed-rate mortgage with a comparable loan term. At the conclusion of the 7- 10 year loan term, the loan balance becomes due. Most borrowers choose to pay off the mortgage by selling the home or refinancing the mortgage at that time.