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Exploring Your Different Home Mortgage Payment Options

Updated on October 30, 2015

Part of being a responsible and self-supporting adult is being able to pay for the things which need to be settled. One of the most important investments in one’s life is the house, and this entails a lot of financial responsibilities. Just about all of the people who buy houses have to deal with mortgage, and there are times when handling it can become troublesome. Everything may seem right on track as long as you don’t miss a payment and your income covers the mortgage, but what if something unexpected happens?

Having a thorough understanding of mortgage and the payment options you have can help you keep your finances under better control. For starters, the main factors which determine the monthly mortgage you will be paying are the terms and the size of the loan. Size means the money borrowed and term is the length of time that the mortgage should be paid back. The longer the term, the smaller the payments—this is why 30-year mortgages happen to be the most popular kind. Mortgages allow people to become homeowners without having to make a huge downpayment. But when it gets hard to handle, it could mean losing your home and having financial troubles to take care of.

Thankfully, there are different kinds of mortgage payment options, and knowing about these can help homeowners find the most suitable kind for them. By being aware of different home mortgage payment options, homeowners can have their finances in better control without fear of losing their home. Since the mortgage is a very important aspect of keeping one’s home, having a thorough understanding of the options one has can help make managing finances much easier without having to risk dire consequences later on.

Fixed Rate Mortgage

This is a self-explanatory kind of mortgage payment option, and it is often considered as the best kind. Fixed rate mortgages give homeowners a set interest rate which means that the rate from the very beginning of the mortgage will not go up over time. What’s advantageous about this kind of mortgage payment option is that you can have the option to refinance when interest rates drop, but you won’t have to worry about the rates going up. What happens is that you can protect your budget from rising interest rates over time when you get to choose a fixed mortgage.

Another advantage of fixed mortgage is that you won’t have to keep on computing for changing interest rates every month and that you only need to set aside a fixed amount of money whenever that time of the month comes. It can be easier to handle because you can even schedule automatic funds transfer options for your mortgage to help ensure you’re covered for each monthly payment as soon as you have your funds from your income.

Adjustable Rate Mortgage

Also referred to as ARM, this kind of mortgage gives homeowners lower rates initially which is equivalent to having lower amounts to pay for the first few months. However, this kind of mortgage would only be good for the first few months when the payments are low and they are all you can afford. After the initial payment period is over and the amount of time will depend on the lender, the interest rates would go up and your payments would go up as well. As tempting as it would be for those who only have a limited budget initially, aspiring homeowners must be very careful when choosing this kind of mortgage. Some potential disadvantages of this kind of mortgage payment include:

  • Having to compute and adjust your entire budget when the rates go up. Initially, the agreeable rates may be easy to handle, but the additional few hundred dollars after a few months can really cut a portion from your budget especially if you are on a tight one.
  • Having to make more money on a constant basis if you are to avail of this kind of loan payment. Since the rates continue to go up, it is imperative for you to keep up with it by having a steady source of income.
  • Being at risk of failing to meet payments which may result in additional payables over time. Failing to meet payments is often the cause of mortgage difficulties and this setup may be a catalyst for a foreclosure.

Interest Only Payments

This kind of mortgage payment option is another which offers lower payment amounts while simultaneously adding greater flexibility to your payments. With this kind of payment option however, you won’t be able to build equity and often, individuals who choose this payment option may find themselves in a hard spot when the interest only mode of payment is over. Paying the interest only is a way to pay the lowest possible amount for mortgages and similar to adjustable mortgage rates, this setup can initially be very easy to maintain for borrowers. Over time though, the term which allows borrowers to pay for interest only may come to an end.

Borrowers should be very careful when choosing interest only payments. Having a really thorough understanding of this mode of payment is key to avoiding future complications which may arise from surprising rates.

Private Mortgage Insurance

This kind of mortgage payment option is the one required when a homeowner does not give the 20% down payment needed for the home acquisition. This is a kind of mortgage payment which protects the lender when the borrower is not able to fulfill the requirements of the loan within the set and agreed upon term. Not all individuals can afford the 20% down payment but may already be in need of a home which is why this is required by the lender. Usually, this kind can be avoided by exercising creative financing—but one must still be careful while doing so.

Creative financing may mean applying for a separate loan or coming up with some money to cover the 20% which is required from you. It must be noted however, that the interest rate on the second loan would usually be higher.

Managing Mortgage Payments

Mortgage payments don’t have to be complicated when you are aware of what is going on financially. You can handle these things by yourself as long as you follow a projected budget and when you are completely aware of the terms you should be expecting from the lender. However, when things get difficult to handle by yourself, hiring a financial adviser is not out of the question. Their services usually come in handy when you can no longer smoothen things out by yourself. Since they have extensive knowledge on how to best go about things, they can make the process of paying your mortgage easier or more manageable based on your existing budget.

There are also loans available for borrowers who are having mortgage problems and finding ones which best apply to your situation can help you keep your mortgage in a favorable situation. Peer-to-peer lending or even online resources for loans can help you when you have underwater mortgage or other mortgage concerns you need to take care of.

The sooner you are able to keep your mortgage in track, the better for your overall budget. Keep in mind that mortgage rates and lenders won’t wait for you and that making good on your payments is essential if you would like to avoid both financial and legal troubles. Think wisely before choosing any of these mortgage payments for your home!

What is your preferred mortgage payment option?

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  • kgmonline profile image

    Geri MIleff 2 years ago from Czech Republic

    @chateaudumer - Thanks for dropping by, David!

  • chateaudumer profile image

    David B Katague 2 years ago from Northern California and the Philippines

    Very informative hub. Voted up. Just recently refinance my home, so I can identify with information on this hub.