Sunday, July 6, 2014

North Shore Mortgage Options

Understanding the Different Types of Loans Available When Purchasing a North Shore Home

Home financing can be confusing, and yet it’s one of the most critical part of buying a home if you aren’t paying cash. There are so many different mortgage types out there, it can be difficult to know which one is right for you. As a long-time realtor on Chicago's North Shore, I’ve gained knowledge on many types of home loans. Here’s a rundown of the most common that you’ll encounter.


This is the most common and standard type of mortgage loan. The terms range from 5 to 50 years, but most often a fixed-rate loan is a 30-year term. When you have a fixed rate mortgage, your interest is completely amortized over the term of the loan. Right now, fixed-rate interest rates are particularly low. As of earlier this week, a 30-year fixed loan rate was as low of 4.12%. The beauty of the payment on a fixed-rate mortgage is that it will remain the same for the entire term of the loan.


This type of loan is not actually “interest-only”. It just allows the borrower the option to make payments in the amount of the monthly interest only for a certain period of time. Typically there is a limit on the amount of time that the borrower has this option, usually the first 5 to 10 years of the loan.  Thereafter, the the full payment including principal must be made for the remainder of the term of the loan. This type of loan can be helpful to first-time buyers, as it does allow for a lower payment if one chooses to make an interest-only payment.


The Federal Housing Administration (FHA) is a division of the government that insures this type of home loan. By having this government insurance, the lender can require less than a 20% downpayment. Between that and the fact that the credit guidelines are not quite as stringent as a conventional loan, this can be a great option for first-time buyers.  This type of loan, however, does have strict appraisal guidelines.


There are many varieties of adjustable-rate mortgages (ARMs). Depending on the type, your rate can change monthly, semi-annually, or annual. Some of these loans are fixed for a specific period of time, commonly 2-5 years, and then adjust for the remaining years of the term.  The potentially scary part of this type of loan is the fact that one cannot predict what is going to happen with the economy and interest rates over the next 30 years, so it is possible for your monthly payment to go up significantly upon adjustment.


Having a combo loan basically means that you have two mortgages paid to two different lenders. This loan is appealing because it can allow for a smaller downpayment and eliminates the need for private mortgage insurance (PMI). Some of these loans will require 5-10% down, while others will require nothing down.

Since most buyers are not able purchase real estate on Chicago’s North Shore with cash, it’s a good idea to research your mortgage options if you’re considering a purchase. While there are numerous of types of loans and even subsets within the list above, chances are that your mortgage will fall into one of these five categories. Deciding which one is right for you will really depend on your credit and personal needs. For more guidance on home financing or for information on real estate on Chicago’s North Shore, please contact me.   I have a passion for North Shore real estate and would be happy to assist you with all of your real estate needs.

Janie Bress
Your North Shore Real Estate Expert

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