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• Fixed-Rate Mortgage
Loans
A fixed-rate mortgage loan is best if you plan to stay in your house for
a long time. loan ensures that there are no surprises. 15, 20, and 30
year repayment terms are the most common. Generally your monthly
payments will be very stable. During the early amortization period, a
large percentage of the monthly payment is used for paying the interest.
As the loan is paid down, more of the monthly payment is applied to
principal.
• 30-Year Fixed-Rate
Mortgage Loans
With the 30-year fixed-rate you will be able to keep your payments down
by making them over an extended time period of 30 years. This mortgage
loan is the easiest fixed-rate to qualify for and provides the maximum
interest deduction for taxes.
• 20-Year Fixed-Rate
Mortgage Loans
The mortgage loan interest rate is often much lower with a 20 year fixed
rate mortgage. This mortgage amortizes principal and interest over 20
years & may save a considerable amount of total interest in the long
run, but the monthly payments will overall be much higher than the
30-year fixed-rate.
• 15-Year Fixed-Rate
Mortgage Loans
Since you would be paying off the mortgage quicker than the other
fixed-rate loans, you will build up equity in your home a lot sooner.
This is an ideal mortgage loan for someone who is approaching other big
expenses such as college tuition for their kids or their own retirement.
• Adjustable-Rate
Mortgage Loans
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With an
adjustable-rate loan (ARM), the interest rate adjusts periodically
as the market rates change. This means that your monthly interest
rate could go up or down depending on the market. These mortgage
loans are attractive to consumers because they usually offer a lower
initial interest rate than a fixed-rate loan. The other benefit to
this is that many people qualify for larger loans due to this
initially lower rate. The downside is that the rate can increase by
quite a bit and some people can't handle the instability.
Who should
consider an ARM?
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Those who are
confident that their income will rise enough in the upcoming years
to support an increase in interest rate.
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Those who plan to
move in the next few years and therefore aren't concerned with an
increase.
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Those who you need
a lower initial rate to afford to buy the home you want. Please
note: There are "caps" or limits to the amount that your
interest rate can increase.
General info on
ARM loans:
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Each loan has two
caps. One sets the most your interest rate can increase during each
adjustment period and the other cap sets the absolute maximum amount
of all interest rate adjustments throughout the life of the loan.
These caps depend on the terms of your loan. Make sure that you can
afford the payment when rates are at the highest cap mark before
accepting the loan.
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These loans
generally begin with an interest rate that is 2-3 percent below a
comparable fixed rate mortgage, and could allow you to buy a more
expensive home.
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However, the
interest rate changes at specified intervals (for example, every
year) depending on changing market conditions; if interest rates go
up, your monthly mortgage payment will go up, too. However, if rates
go down, your mortgage payment will drop also.
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There are also
mortgages that combine aspects of fixed and adjustable rate
mortgages - starting at a low fixed-rate for seven to ten years, for
example, then adjusting to market conditions. Ask your mortgage
professional about these and other special kinds of mortgages that
fit your specific financial situation
• Balloon Loans
Balloon loans are attractive because they offer a lower interest rate
for a short term financing period. (Usually 5, 7 or 10 years) At the end
of the term you will be required to either pay off the outstanding
balance in one lump sum or you can refinance the loan. If you don't
think you can meet the refinancing conditions or you think the balloon
term may be up before you are ready to move, this is probably not the
type of mortgage loan for you. Balloon loans are short term mortgages
that have some features of a fixed rate mortgage, such as a level
payment feature during the term of the loan.
At the end of the loan
term there is still a remaining principal loan balance and the mortgage
company generally requires that the loan be paid in full, which can be
accomplished by refinancing. Many companies have other options such as a
conversion feature at the end of the term. For example, the loan may
convert to a 30 year fixed loan at the thirty year market rate plus a
certain percentage point.
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