| When you're shopping for a new home-especially for | | | | goes up, so will your monthly payment. If it drops, your |
| the first time-all the terms and expressions may be | | | | monthly loan payment will as well. The adjustable rate |
| confusing and difficult to understand. Adjustable rate, | | | | is tied to an index, which is determined by the lender. |
| fixed rate, balloon payment - how do you decide which | | | | Other terms of the mortgage are also determined by |
| is the right type of home mortgage for you if you're | | | | the lender. These include how often the interest rate is |
| not even sure what each of them are? | | | | adjusted - anywhere from every 3-6 months to once |
| The name of the mortgage type usually has to do | | | | a year, how much the interest rate can increase or |
| with how you'll pay for your loan - how the interest on | | | | decrease on any adjustment date, and whether there |
| the loan is being determined by the bank. The three | | | | is a 'cap' on how high the interest rate can rise. |
| major types of mortgages are fixed rate, adjustable | | | | Often, adjustable rate mortgages are advertised with |
| rate and balloon payment. Each has advantages and | | | | extremely low interest rates, which will be in effect for |
| disadvantages. | | | | a short period of time. When the introductory period is |
| Fixed Rate Mortgage | | | | over, the mortgage rate will rise to its normal amount. |
| With a fixed rate mortgage, you have a set interest | | | | Choose an adjustable rate mortgage when you have |
| rate for the entire life of the loan. The interest rate that | | | | secure income that is likely to increase along with the |
| you pay for your loan won't change - which means | | | | economy. It's a good mortgage when interest rates |
| that you'll pay the same monthly payment for the | | | | are stable, or if the signs suggest that they're about to |
| entire length of the loan. This protects you from | | | | fall. |
| unexpected rises in interest rates that would increase | | | | Balloon Mortgages |
| your monthly payment. At the same time, should the | | | | A balloon mortgage is often a last resort for home |
| interest rates drop, you will have the option of | | | | buyers who can't qualify for more traditional loans. The |
| refinancing at a lower interest rate. Because the | | | | balloon mortgage has a fixed interest rate and monthly |
| protections are largely on the side of the buyer with a | | | | payments for a specific amount of time. At the end of |
| fixed rate mortgage, interest rates on them are | | | | that time, the entire loan comes due - hence the name |
| generally slightly higher than they would be on other | | | | 'balloon'. In practical terms, a balloon rate will give you a |
| types of mortgages. | | | | fixed monthly payment for several months. After that, |
| A fixed rate mortgage is the safest type. Because the | | | | you'll essentially have an adjustable rate mortgage. |
| payments are predictable, it's usually considered the | | | | Choose a balloon mortgage loan for substantially lower |
| most desirable type of mortgage. Always choose a | | | | initial rates, or if your credit limits the other types of |
| fixed rate mortgage if interest rates are rising. | | | | mortgage that you can apply of qualify for. |
| Adjustable Rate Mortgage | | | | Now that you understand your options for mortgage |
| When you choose an adjustable rate mortgage, your | | | | loans, don't forget to shop around! The interest rates |
| monthly payment and interest rate will fluctuate with | | | | and fees can vary wildly from lender to lender, so |
| the current market interest rate. If the interest rate | | | | make sure that you get the best deal that you can! |