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Home Mortgage Loans - Fixed Rate, Adjustable Or Balloon, Which One Is Right For You?
When you're shopping for a new home-especially for the first time-all the terms and expressions may be confusing and difficult to understand. Adjustable rate, fixed rate, balloon payment - how do you decide which is the right type of home mortgage for you if you're not even sure what each of them are? The name of the mortgage type usually has to do with how you'll pay for your loan - how the interest on the loan is being determined by the bank. The three major types of mortgages are fixed rate, adjustable rate and balloon payment. Each has advantages and disadvantages. Fixed Rate Mortgage With a fixed rate mortgage, you have a set interest rate for the entire life of the loan. The interest rate that you pay for your loan won't change - which means that you'll pay the same monthly payment for the entire length of the loan. This protects you from unexpected rises in interest rates that would increase your monthly payment. At the same time, should the interest rates drop, you will have the option of refinancing at a lower interest rate. Because the protections are largely on the side of the buyer with a fixed rate mortgage, interest rates on them are generally slightly higher than they would be on other types of mortgages. A fixed rate mortgage is the safest type. Because the payments are predictable, it's usually considered the most desirable type of mortgage. Always choose a fixed rate mortgage if interest rates are rising. Adjustable Rate Mortgage When you choose an adjustable rate mortgage, your monthly payment and interest rate will fluctuate with the current market interest rate. If the interest rate goes up, so will your monthly payment. If it drops, your monthly loan payment will as well. The adjustable rate is tied to an index, which is determined by the lender. Other terms of the mortgage are also determined by the lender. These include how often the interest rate is adjusted - anywhere from every 3-6 months to once a year, how much the interest rate can increase or decrease on any adjustment date, and whether there is a 'cap' on how high the interest rate can rise. Often, adjustable rate mortgages are advertised with extremely low interest rates, which will be in effect for a short period of time. When the introductory period is over, the mortgage rate will rise to its normal amount. Choose an adjustable rate mortgage when you have secure income that is likely to increase along with the economy. It's a good mortgage when interest rates are stable, or if the signs suggest that they're about to fall. Balloon Mortgages A balloon mortgage is often a last resort for home buyers who can't qualify for more traditional loans. The balloon mortgage has a fixed interest rate and monthly payments for a specific amount of time. At the end of that time, the entire loan comes due - hence the name 'balloon'. In practical terms, a balloon rate will give you a fixed monthly payment for several months. After that, you'll essentially have an adjustable rate mortgage. Choose a balloon mortgage loan for substantially lower initial rates, or if your credit limits the other types of mortgage that you can apply of qualify for. Now that you understand your options for mortgage loans, don't forget to shop around! The interest rates and fees can vary wildly from lender to lender, so make sure that you get the best deal that you can! To view our list of recommended mortgage lenders online, visit this page: Recommended Mortgage Lenders Online Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans. The site has informative articles and the latest finance news.
Adjustable Rate Mortgage - How They Work?
How does an ARM work.The borrowers interest rate is determined initially by the cost of money and the time the loan is made. Once the rate has been set, and it is tied to one of several widely recognized and published indexes , and future interest adjustments are based on the upward an downward movements of the index. An index is a statistical report that is generally reliable indicator of the approximate change in the cost of money.At the time a loan is made, the index preferred by the lender is selected, and thereafter the loan interest rate to rise and fall with the rates reported by the index. Since the index is a reflection of the lenders cost of money, it is necessary to...
Bad Credit? Qualify Yourself For A Zero Down Mortgage Loan
I decided to write this article today after closing a home purchase loan for a couple that had some major credit ...
Save Time With A Bridge Loan
Why You Need a Bridge LoanYou have to move fast in today's housing market if you want to get into the home of your dreams. In cities such as Seattle or San Francisco it's not uncommon for a buyer to receive half a dozen offers within the first day or two after putting the house on the market.Unless you have enough excess income to buy a second home without selling your current abode, you will...
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Adjustable Rate Mortgages Offer Alternatives For Home Buyers
When looking for a mortgage to meet your needs, consider these key questions: Is your income expected to increase in the coming years? How long do you plan to live in your new home? And, which mortgage will provide the lowest interest rate?While 15 or 30 year fixed-rate mortgages are the most popular, and Adjustable Rate Mortgage (ARM) offers some interesting alternatives for home shoppers who plan to move again within four or five years. Although interest rates are the lowest they've been in 20 years, an ARM provides even lower interest rates during its introductory period.An Adjustable Rate Mortgage is a home loan with an interest rate that fluctuations with market interest rates. Instead of paying the same rate of interest over the life of the loan, as you would with a fixed-rate mortgage, you usual... |  |
| Home Mortgages: Think Before You Borrow
In today's overheated housing market, lenders are making it easier and easier to get a mortgage. For example, some lenders have lowered the credit score needed to qualify for a mortgage. Others have increased the debt load that borrowers can carry or have made it easier for borrowers to get loans while providing little documentation. In some cases, lenders have even made it easier for people to borrow money to buy investment properties.There are also many kinds of mortgages available today that were never available before. There are interest only mortgages, adjustable rate mortgages (ARMs) for 3,5 or 10 years and adjustable rate mortgages with balloon payments at the end of a five or ten year period.There are even adjustable rate mortgages that have introductory rates... | |
| Is The Inverse Mortgage A Scam? New Program Promises Mortgage Payoff Inside Of 5 Years
If a mortgage could be paid off in five years or less, without it costing homeowners an extra cent, why wouldn't every homeowner in America be doing it? Because they don't know, or because they're too wise? Although the former may be the case for many, I certainly hope the latter is the answer for most.A real estate finance consultant company, who shall remain nameless here, claims it has the secret to paying off your mortgage in five years or less, without you paying any more on your monthly payment or adding to the principal mortgage of your real estate loan. They call it an inverse mortgage.Now, thi... | |
| Refinancing And Car Finance - Is It Worth It?
Refinancing and Car Finance - Is it Worth It?No doubt you have heard of refinancing your mortgage. It has become all the rage, but now you can also refinance your car loan.You stand to save several hundred dollars over the term of the loan.My take on it is go for it. Competition is healthy and it will keep the finance companies on their toes providing better service for all. There's just one thing to be careful of online:Just make sure you go with a reputable company. There are car finance companies on line these days such as E-loan or Capital 1, which are proving themselves worthy adversaries to the standard brick-and-mortar loan companies.It's not hard to see why? Simply apply ... | |
| Buying A House Or A Home?
A house is just that, a house, until someone lives in it. That's when it becomes a Home. There's a big difference. At our house, we a... | |
| How To Buy A Home Without A Down Payment
Mortgage rates are rising and it's becoming more difficult for a prospective buyer to save up for the necessary down payment. Fortunately, there are ways around this hurdle.Although homebuyers were once required to put down 20% of the purchase price, those times are long gone. Generally, lenders now require 3 to 5 percent down. The problem then becomes how to save up for that 3 percent.What many don't know is that they have several options for coming up with the money.RETIREMENT SAVINGSMost 401 (k) or Individual Retirement Accounts will allow people to borrow or withdraw money early. Doing so can be a good strategy ... | |
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