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Buying a home is one of the most significant financial decisions most people will make. For most, this involves taking out a mortgage. With so many options available, it can be overwhelming to decide which one is right for you. This guide explains the most common types of mortgages, their pros and cons, and how interest rates affect them. At the end, you’ll find 15 FAQs to help you make an informed decision.
👉 You can read more about Types of Mortgages Explained: A Comprehensive Guide by clicking here (https://real-estate-crunch.com/types-of-mortgages-explained-a-comprehensive-guide/) .
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[Music]
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Hi, this is Anita from Real Estate
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Crunch. Today we're going to talk a
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little bit about mortgages because when
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most people buy a property, they will
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take out a mortgage, which means that
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they will loan money from a bank or a
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lender and then that then they will pay
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back with interest to the bank for their
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property. So, first of all, what is a
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mortgage? A mortgage is a loan that
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helps you buy a house or property. You
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borrow money from a lender and repay it
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over time, typically 15 to 30 years with
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interest. The mortgage type you choose
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affects your monthly payments, total
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cost, and financial flexibility. So,
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let's talk for a minute about the
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different types of mortgages. The first
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one is a fixed rate mortgage. Fixed rate
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mortgage is a loan with an interest rate
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that stays the same throughout the loan
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term. The pros are that, you know, it's
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predictable monthly payments. You know,
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you're going to pay every month. It's
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protection from rising interest rates,
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and this is usually a great one to get
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if interest rates are low and then you
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can get a fixed rate mortgage. That's
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usually a great mortgage to be able to
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get at that time. And it's great for
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long-term house owners. Cons are you
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have higher starting interest rates
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compared to adjustable rate mortgages
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because if the mortgage rate goes down,
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you're not going to get the lower rate
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and it's best for buyers planning to
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stay for long term. They want to have
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stable, you know, type of payments every
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month. They want to know exactly what
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they have to pay every single month. An
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adjustable rate mortgage is different
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than a fixed rate mortgage and it is as
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the name implies. It's also known as an
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ARM or ARMS. It is a loan with an
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initial interest rate that adjusts
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periodically after a fixed period.
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So it could be five years, seven years
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or 10 years. You the pros are you can
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have, you know, lower starting interest
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rate, you know, savings if the rate
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decreases. Cons are payments can
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increase if the rate rises and
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uncertainty in the long-term cost. So
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you really don't, you know, know what
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the long-term cost will be. there can be
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some uncertainty there and it's best for
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buyers planning to sell or refinance
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before the fixed rate period ends. Then
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there's the FHA loans which is a
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governmentbacked loan for low to
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moderate income buyers with low credit
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scores. They can be a low down payment
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as low as 3.5%.
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It's easier to qualify for lower with
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lower credit scores and it's competitive
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interest rates. Cons are it requires
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mortgage insurance, so you have to buy a
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mortgage insurance for it and loan
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limits may not cover expensive homes.
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So, it's best for first-time buyers or
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those with limited savings or lower
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credit scores. A VA loan is a loan
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backed by the US Department of Veteran
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Affairs for eligible veterans and active
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duty military members. There's no down
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payment required, no private mortgage
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insurance, and competitive interest
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rates. The cons are only available to
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veterans and service members, and
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funding fees may apply. So, this is, you
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know, great one if you are a veteran or
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an active duty military personnel. This
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could be a great loan for you to get.
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There's a USDA loan which is for rural
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and suburban uh buyers meeting income
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requirements backed by the US government
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of agriculture. The pros are again
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there's no down payment required, low
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interest rates and flexible credit
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requirements. The cons are they're only
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available in eligible rural and suburban
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areas and income limits apply. So buyers
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in rural areas with limited savings is
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this could be a good loan for you. Last
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one is called jumbo loans. Jumbo loan is
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a loan for properties exceeding
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conforming loan limits set by the
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Federal Housing uh finance agency, the
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FHFA.
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Pros are allows financing for high value
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properties and has competitive interest
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rates for qualified buyers. Cons are
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stricter credit requirements, higher
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down payments and interest rates. It's
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best for buyers purchasing luxury or
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highv value homes. So those are the
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basic mortgages which are available in a
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country as this is specifically for the
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United States. So other countries may
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have something similar or they may not
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have something similar
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you know. So interest rates is really
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what is the key in all of this because
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the higher the interest rates you will
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increase your monthly payments and total
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lo loan costs. That's why on the news
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you hear so much about what are the
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interest rates, lowering the interest
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rates because whatever the interest rate
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is, it means that your monthly payments
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are higher. Lower interest rates can
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reduce your monthly payments and save
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money over time. And you know, fixed
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versus the adjustable rates, fixed rates
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can give you more certainty, lock in
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your rate, while the adjustable rates
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can fluctuate based on the market
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trends. So, you know, all of these are
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things that you need to consider if
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you're looking to buy property and that
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you need to understand if you're looking
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to be able to get a mortgage. We have
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written a blog post on this if you'd
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like to be able to read more about this.
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We have 15 frequently asked questions
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about this and our blog post is called
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the types of mortgages explained, a
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comprehensive guide. We will put a link
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for the blog post in the description
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below in case you'd like to be able to
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read more. Thank you so much for
5:31
listening and being part of our
5:32
community. We truly do appreciate you.
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If you haven't yet, press that subscribe
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button. We'd love to have you join with
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us. Thank you so much.
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