Two Kinds Of Mortgage Loans
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by: marciafreeman
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There are two broad categories of mortgage loans fixed rate mortgages and adjustable rate mortgages although there may be several different types available. Deciding which type of mortgage loan to apply for will depend on your particular set of circumstances and how much risk you are willing to incur. In this article, we will cover the benefits and drawbacks of both mortgage loans, and give you some hints on choosing the best mortgage loan for your needs.
Fixed Rate Mortgages
On the whole, fixed rate mortgages tend to offer more security and stability for the home buyer. Since fixed rate mortgages have a predetermined interest rate throughout the entire course of the loan, you will know exactly how much you have to pay every month. Therefore, you will be paying the same monthly principal and interest rates during the entire period of the mortgage. While some adjustable rate mortgages have an introductory period during which the interest rate is fixed, a true fixed rate mortgage has one interest rate for the entire term of the mortgage loan.
One disadvantage of fixed rate mortgage loans is that they typically have a higher interest rate than an adjustable rate mortgage. Generally speaking, the longer your mortgage loans terms are, the higher the differences in costs will be with fixed rate mortgages compared to adjustable rate mortgages. If you intend to live in the home for a long time and you anticipate an increase in interest rates in the future, the increased expense that you pay today can result in considerable savings in the future.
Adjustable rate mortgages (ARMs) Adjustable rate mortgages attend to provide a homeowner with a lower initial interest rate but more uncertainty about interest rate and payment changes in the future. With adjustable rate mortgages, the interest rates are dependent on general interest rates or what is known as an index. Many adjustable rate mortgages are considered hybrid mortgages and have a fixed introductory period of 1, 3, 5 or 7 years during which time the interest rate does not change. But other type of ARMs can reset at much more frequent intervals. These types of hybrid adjustable rate mortgages may be better options for you if you only intend to stay in your home for a few years. Its always important to keep in mind, however, that payments on adjustable rate mortgages could increase when the interest rate resets. Many ARMs however impose limits on how high interest rates can increase during an adjustment period.
Choosing the right mortgage loan for you So how do you decide which mortgage loans are right for you? As we said earlier, it all depends on the risk that you are willing to take as well as your particular circumstances. Fixed rate mortgages are generally a safer option simply because you know how much you will have to pay each month. Adjustable rate mortgages on the other hand may be less expensive initially, but carry more risk. In any case, careful comparison shopping will help you decide which mortgage loan will best suit your needs.
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