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After taking out a loan of any type, the next step is deciding how the loan will be paid off. Whether it is a long term loan or a short term loan, knowing the different repayment methods is valuable information. Many loans give you the option of how many years you as the borrower would like to have to pay off a loan.
Typically loans can are 10, 15, or 30. The shorter the term of the loan means the less interest a borrower pays over the term of the loan saving the borrower money. Borrowers should keep in mind that the shorter the loan term the higher the monthly mortgage payment.
Some common payment methods:
Interest Rate Buy Downs:
The buyer would pay points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.
Graduated Payment Method or GPM:
With a GPM the payments are usually fixed for one year at a time. Choosing the best program and the right type of mortgage age for you depends on many different factors.
Interest Only:
Each month you pay the interest only, with the capital repaid at an agreed time in the future. It is your responsibility to ensure that you have adequate funds to repay the mortgage at the end of the specified term.
Capital Repayment:
Each month in addition to interest you pay an amount which repays the capital gradually over the agreed loan period.
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