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Best Mortgage @ Lowest Rates!!
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You’re right - there are many types of mortgages, and the more you know about them
before you start, the better. Most people use a fixed-rate mortgage. In a fixed-rate
mortgage, your interest rate stays the same for the term of the mortgage, which
normally is 30 years. The advantage of a fixed-rate mortgage is that you always
know exactly how much your mortgage payment will be, and you can plan for it.
Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With this kind of
mortgage, your interest rate and monthly payments usually start lower than a fixed-rate
mortgage. But your rate and payment can change either up or down, as often as once
or twice a year. The adjustment is tied to a financial index, such as the U.S. Treasury
Securities index. The advantage of an ARM is that you may be able to afford a more
expensive home because your initial interest rate will be lower.
There are several government mortgage programs that might interest you too. Most
people have heard of FHA mortgages. FHA doesn’t actually make loans. Instead, it
insures loans so that if buyers default for some reason, the lenders will get their
money. This encourages lenders to give mortgages to people who might not otherwise
qualify for a loan.
Fixed-Rate Mortgage
A Fixed-Rate Mortgage applies the same interest rate toward monthly loan payments
for the life of the loan. Fixed-rate mortgages are more straightforward and easier
to understand than Adjustable Rate Mortgages (ARMs), are more secure for the buyer,
and are popular with first-time homebuyers. Since the risk to the lender is higher,
fixed-rate mortgages generally have higher interest rates than ARMs.
For example, a lender can offer a 30-year fixed loan to a homebuyer at a 7.0% interest
rate. The loan is locked in to the 7.0% interest rate, even if the market interest
rate rises to 9.0%. Conversely, if the market interest rate decreases to 5.5%, the
borrower will continue to pay the 7% interest rate.
Fixed-Rate benefits include:
- No change in monthly principal and interest payments regardless of fluctuations
in interest rates
- More stability may give you "peace-of-mind"
Fixed-Rate considerations include:
- Higher initial monthly payments compared to those of adjustable rate mortgages
- Less flexibility
Adjustable Rate Mortgage
An Adjustable Rate Mortgage (ARM) does not apply the same interest rate toward monthly
payments for the life of the loan. Throughout the life of that loan, the homebuyer's
principal and interest payment will adjust periodically based on fluctuations in
the interest rate.
For example, a lender could offer a 30-year ARM loan to a homebuyer at an initial
6.5% interest rate. During an adjustment period for the ARM loan, the market interest
rate could rise to 8.0%, resulting in a significantly larger interest payment. Similarly,
the market interest rate could decrease to 6.0%, resulting in lower interest payments.
ARM benefits include:
- Initial payments lower due to lower beginning interest rate, usually about 2 percentage
points below the fixed rate
- Ability to qualify for a higher loan amount due to lower initial interest rates
- Lower interest payments if the interest rate drops over time
- Interest rate caps limit the maximum interest payment allowed for the loan
ARM considerations include:
- Initial lower interest rate and monthly payments are temporary and apply to the
first adjustment period. Typically, the interest rate will rise after the initial
adjustment period.
- Higher interest payments if the interest rate rises over time
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