Homebuying is an exhilarating process, but having the right people and the right products behind you is essential.
5 Types of Mortgages You Should Know About
Sue Lee | Relationship Manager
First Republic Bank
4 min read
Buying a house is an exciting endeavor, and homeownership is a huge accomplishment. If you’ve decided that the time is right to buy a house (or your second house or vacation home!), setting a budget and searching for your dream abode are two important steps, but so is figuring out how you’ll pay for it.
Rising mortgage rates and home prices in 2019 could impact this year's home sales, but it doesn't have to be the end of your homebuying dream. Picking the right home loan for this big and important purchase will not only help the process go smoothly, but it may save you a lot of money and headaches in the future. Here's what you should know about some of the more common home loans to help you determine which type will work best for you.
1. Single-family fixed rate loans
Best for: Single-family fixed-rate loans are a good fit for homebuyers who want to set a reliable interest rate for the foreseeable future.
How it works: There are a lot of variables when it comes to buying a home — what your neighbors will be like, whether or not your dog will approve of his new digs — but the interest rate on your mortgage doesn't have to be. Fixed-rate home loans for your house, condo or co-op offer a way for you to always know what your monthly mortgage payments will be, since your interest rate with this type of loan will be fixed at a certain percentage for the duration of the loan. Fixed-rate mortgages help new homeowners settle into a comfortable monthly budget that they can rely on, which is especially helpful for homeowners looking to rebuild savings.
2. Single-family adjustable-rate loans
Best for: Single-family adjustable-rate loans are optimal for first-time homebuyers who would like to buy their house with an interest rate that takes advantage of potential dips in the market.
How it works: Like a fixed-rate loan, the adjustable-rate mortgage is another solid option for families hoping to buy their first home, condo or co-op. However, unlike the fixed-rate loan option, an adjustable-rate loan has an interest rate that fluctuates based on the market. That means that your rate could go up or down over time, depending on the overall economic climate. Buyers who are used to dealing with the ebbs and flows of the market and who can remain patient through down periods may be interested in the potential advantages that this type of loan could provide.
3. Single-family hybrid adjustable-rate loans
Best for: Single-family hybrid adjustable-rate loans may be good for first-time homebuyers looking to buy a home with a dependable interest rate to start, but one that shifts to take advantage of potential dips in the market.
How it works: The hybrid adjustable-rate mortgage loan is the best of two worlds when it comes to mortgages. This option combines the reliability of a fixed rate for a set introductory period — which is helpful for new homeowners trying to get settled into making mortgage payments in conjunction with other additional costs that tend to crop up with a new home — and then it adjusts to a variable rate after the introductory period ends.
4. All-in-one home loans
Best for: All-in-one loans are a good fit for first-time homebuyers who want to build their own first homes rather than buying something pre-constructed.
How it works: Sometimes the perfect home isn't something that already exists — it's something you want to create all on your own. If your dream is to live in a home you've built from scratch, an all-in-one loan could be the right mortgage fit. These types of loans cover every aspect of homebuilding from land acquisition to construction and permanent financing, meaning that even if this is your first time building a home, experts will be able to walk you through the steps to ensure you do everything properly. One loan closing process and on-site inspections to monitor construction progress also help ease the additional stress that can come with building a home.
5. Vacation and second home loans
Best for: Vacation and second home loans are designed for those who have purchased homes in the past and are looking to make an additional real estate purchase.
How it works: Investing in real estate can be fun and, if done the right way, lucrative. Luckily, vacation and second home loans are the perfect solutions for people ready to make that second purchase. Whether you'll be purchasing a vacation or second home solely for your own family to make new memories in, or to potentially rent out from time to time, a relationship manager can guide you through the application process on the way to deciding which type of second home loan is right for you. There will be a lot of general factors to consider if you're looking into purchasing a second home — like maintenance and management, especially if you won't be on-site regularly — but flexible payment options for your mortgage, including fixed-, adjustable- and hybrid adjustable-rate mortgage loans, mean there's a type of loan for every customer and less to worry about on that front.
Homebuying is an exhilarating process, but having the right people and the right products behind you is essential. Picking the best home loan for your purchase is one of the most important homebuying decisions you’ll make, but with so many options these days, there is bound to be one that’s the perfect fit. Start by considering exactly what your homebuying needs are, and let an expert help point you in the right direction if you can't decide. Learn more about the benefits of a mortgage loan with First Republic today.
The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the consequences of any strategies mentioned in this document. The information has been verified by the author, but it does not constitute legal or tax advice and First Republic is not acting as your attorney or tax advisor. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. This information is governed by our Terms and Conditions of Use.
