Mortgage Basics
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Other types of mortgages

3. Balloon mortgage

Borrowers get lower rates and payments for a specific period of time, usually three to 10 years. At that point, a borrower has to pay off the principal balance in a lump sum. Under certain conditions, the mortgages can be converted to fixed-rate or adjustable-rate loans. Many borrowers either sell their homes before they get to their due dates or refinance their balances into new mortgages.

Pro: Save on mortgage costs initially -- a great option if you don't plan on living in the home long.
Con: Plans sometimes change. If yours do, you will have to pay off or refinance the balance, which takes time, effort and more closing costs.

4. Assumable mortgage

Assumable mortgages are relatively rare. A homeowner with an assumable loan can hand off the loan to a buyer instead of paying it off using proceeds from the home sale. If rates are low and you can get one, by all means do so. If rates rise, buyers will want to assume your loan (and might be willing to pay more for your house) because it'll be much cheaper than any loan they could get from a bank or other source.

Pro: Reduces monthly payments and saves money on closing costs.
Con: Sellers charge more for houses, so buyers need more cash to cover the difference between the asking price and loan balance.

5. Construction mortgages

Construction loans help people who want to build homes, rather than buy existing ones. They typically feature a two-step borrowing process. Borrowers pay higher rates for the duration of construction as they draw money to pay their builders, paying only interest on the outstanding amount. Then they go through a second closing, where the loan usually converts to a traditional, long-term fixed-rate structure.

6. Seller financing

Seller financing is an agreement in which the seller of the home provides financing to the buyer. The buyer makes monthly payments to the seller instead of the bank. A promissory note is secured by the property. This type of financing often includes an assumable mortgage.

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