Mortgage Types You Can Choose From

2007-03-08 10:33:40

( Business )



When you consider taking out a mortgage for your home, financial advisors will advise you to familiarize yourself with the different types of mortgage (including their advantages and disadvantages). This will help you find the mortgage that best fits your budget and your needs.

There are basically two types of mortgage: the fixed rate mortgage and the adjustable rate mortgage. Lenders might offer many variations of mortgage types but they all basically are some version of these two mortgage types.

Fixed Rate Mortgage

Fixed rate mortgages have fixed terms and interest rates. They provide repayment of the principal amount (the unpaid balance of a loan) over a specified number of years in equal monthly payments, which include interest.

In fixed rate mortgages, you know that the interest rate and monthly payments will not change over the entire life of the loan. And if inflation continues, your monthly payments represent less cost over the life of the mortgage. But the interest rate and the monthly payment may be a little higher than the other type of mortgage, the adjustable rate mortgage.

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage generally offers lower interest rate than a fixed-rate loan, and new buyers can assume this type of mortgage. However, interest rate on ARM (which is based on some reference point or market index) changes on a prearranged payment schedule.

You must determine what index the lender proposes to use, how it has performed in the past, and where it is published. The index is usually the interest rate of nationally recognized and published rates but some lenders use their own in-house indexes over which they have some control. Note that indexes can be stable or can fluctuate quickly. In a broad sense, both you and your lender are in a financial betting game, with you hoping that index rates will decline.


All rights Reserved © Tradenet Services srl
Do not duplicate or redistribute in any form.