9/22/2022
It would not be bold to say that the US economy, while the largest, is also one of the most diversified. People who live in this country must get used to having a wide variety of offers in banking instruments, especially in loans and credits.
In this category, it's time to review the types of mortgages in the United States.
Unlike other assets, real estate has the particularity of increasing in value over time, except for periods of decline after a bubble such as the one that occurred until 2008.
This becomes more evident as the population grows, urban land becomes scarcer and people have more resources to buy the home of their dreams. To make it a reality, you have different types of mortgages. Here are the main ones:
- Interest: From 4.75% to 5.75%
- Max term: 30 años
- Interest: Consult
- Max term: 30 años
- Interest: First years fixed-rate and the rest adjustable: SOFR + margin
- Max term: 30 años
- Interest: SOFR + margin
- Max term: 30 años
- Interest: From 5.125%
- Max term: 30 años
Fixed-rate mortgage
It is undoubtedly the most popular option because the monthly payments do not change during the life of the financing and you have up to 30 years to repay the principal balance.
The most common terms of fixed-rate mortgages are 10, 15, 20 and 30 years, giving you the advantage of choosing less time to receive a lower interest rate.
Adjustable-rate Mortgage (ARM)
ARMs are not currently as popular in the United States as in other countries because the resulting rate is higher than that applied by fixed mortgages, since banks prefer to sell fixed-rate mortgages at the prospect of that interest rates remain low for quite some time.
With variable mortgages, banks usually offer a mixed modality, which has a first term with fixed rates that can be 3, 5, 7 or 10 years and that are usually expressed as follows respectively: 3/1 ARM, 5/ 1 ARM, 7/1 ARM, 10/1 ARM.
Balloon mortgage
Also known as a progressive amortization mortgage, it works differently than what you know. It has a short payment period (10 years or less) and lower payments due to the lower interest rate.
The detail with this option is that you start paying only interest and at the end of the term you must make a single payment of the remaining balance. It is recommended for those who know that they will sell the property before expiration because it can be risky to face the final amount.
Combo or piggyback mortgage loan
It is an option offered by the bank when you cannot pay the 20% down payment. It is a way to avoid the cost of private mortgage insurance or PMI (Private Mortgage Insurance), so you get 2 mixed credits, one for 80% and the other for 20% of the value of the home.
The first has a cheaper fixed interest rate and the other an adjustable or more expensive rate. Although it is an expensive alternative, the PMI is also expensive. The ideal would be to pay the 20% loan as soon as possible.
Jumbo Mortgage
As its name indicates, it is a large financing and usually has a base limit of around $647,200 USD within the country and $725,000 outside the continental area.
Among their peculiarities: they cannot be bought or supported by the federal government, they have a special contract, other types of taxes and buyers do not get the same low rates as with smaller amounts.
The Jumbo Mortgage is intended for the purchase of luxury properties in local real estate markets where there is a lot of competition.
Reverse mortgage
It is a type of credit intended for people over 60 years of age or senior citizens, so that they can obtain extra money during their retirement. This class of instrument gives you the opportunity to raise equity on current property in the form of equity. It is possible to obtain the amount in monthly or one-time payments.
The owner does not have to repay the money and, when he dies, the financial institution retains ownership of the home and the mortgage loan is settled.
Government-backed mortgage loans
This type of mortgage is intended to encourage people to obtain a home on favorable terms. The fact of being backed by government entities means that, if for any reason you stop paying, the government is responsible for covering the losses of the bank or lender.
They are designed for people with fewer resources and first-time buyers. The available options are:
- VA Mortgages
- HAV Credits
- FHA loans
- USDA Loans
- State and local programs
- Loan for indigenous house with guarantee
Interest-only mortgage
Although the balloon mortgage belongs to this category, with most of these loans you do not have to pay a total amount at the end. Instead, they allow you to pay interest for a period of 5 to 10 years and then you can continue paying as if it were a conventional mortgage loan. This scenario serves those who are going through economic difficulties.
Español: Tipos de hipotecas en Estados Unidos