Online Home Mortgage Loan Types

When applying for an online home mortgage loan there are lots of things to consider. Perhaps the most important is which type of loan it is you want to receive. Certain loans, such as home equity loans or home equity lines of credit, have specific uses, while others are available across a variety of situations such as the VA loan, ARMs and fixed rate loans. Which one is best for you depends on your situation, your needs and what outcome you expect from your home loan.

A Note on Equity

Equity is a word used to describe a home's value when placed against how much money is owed on its mortgage(s) (if any). For example, if you have a home that is appraised for $150,000 and you only owe $70,000 on the mortgage for the home, then home is said to have $80,000 worth of equity in it. In bad markets it is possible to be upside down on your home loan or have what is known as negative equity which is where you owe more on the home than it is worth. The best way to avoid falling into this situation is by having a 20% down payment on your home when you purchase it.

A Note on Mortgage Terms

The term of a loan expresses its length. While most loans used to be your standard 30 years, there are more options available to mortgage shoppers today. Mortgages can be had from some lenders that will last as long as 60 years, or, if you have the financial means to make large payments and wish to get the burden of a mortgage payment behind you as quickly as possible, you can shorten your mortgage term to as little as 10 or 15 years. Generally, the longer your mortgage term, the more you will pay for the loan over time in interest, so while a 60 year mortgage may seem like a great way to have a really low house payment, keep in mind that you will ultimately be paying more than double, or even triple the home's actual value by the time the loan is paid off.

Home Equity Loans and Lines of Credit

The home equity loan is a one-time lump sum payment used for whatever the borrower wishes to make home repairs, go on vacation, consolidate debt or anything at all. You apply for a home equity loan in much the same way that you apply for a regular mortgage. A professional appraisal of your home's value will be required and the bank will use that to formulate how much of a loan you can apply for.

Home equity lines of credit are like home equity loans except that they are not a one-time payment taken out against your equity. Rather these loans (HELOC for short), act as a credit line that you can use as often as you wish as long as you stay within the guidelines of the loan agreement that dictate how often you must use it, your repayment schedule and any applicable usage fees. Another important difference is that the home equity loan has a fixed interest rate usually. A home equity line of credit's interest rate may adjust - just like a regular credit card - and if you miss payments or are late in paying back the loan you may be penalized by an interest rate hike or serious penalties.

Fixed Rate and Adjustable Rate Mortgages

A fixed rate mortgage is exactly what its name implies: a loan that has a fixed interest rate for the entire life of the mortgage. An adjustable rate mortgage on the other hand starts off usually with a very low interest rate for a few years, but then the interest rate may begin to fluctuate or change based on several market factors or other conditions. If you are not careful with managing an adjustable rate mortgage, you may quickly find the monthly payment for your home rising beyond your means to pay it.