Types of Mortgages

How can you choose which
type of mortgage to agree to?
The number of choices on the
market can be confusing!
We’ll help you to briefly review
the two most common types of
mortgages. Remember when
refinancing – you’re putting
your home on the line! So
knowing what type of
mortgage can safely meet your
needs is critical.

Fixed Rate Mortgage

This is the most traditional type
of mortgage. This is the type
of mortgage your parents and
grandparents had when they bought their house. The interest rate is set for the length of the loan; the monthly payment of interest and principal stays the same until the home loan is paid off. Regardless of whether interest rates rise or fall, your payment remains the same so it is easier for you to budget your monthly payment. Also, as your monthly income rises while you own your home, it becomes less of a burden to be able to afford your monthly payments.

[Pullout:

This is a mortgage with an interest rate that fluctuates over time. Usually, the initial interest rate is lower than that of a fixed rate mortgage. But the interest rate can rise (and in some cases, can fall) based on calculations that your lender uses. It is extremely important that you fully understand the type of index your lender is using to base his calculations on, because this will control the amount of fluctuation in your interest rate. It is also vital to know how often and when your interest rates will change.

On the positive side, an adjustable rate mortgage can allow you to start out with lower monthly payments that increase as your monthly income grows.

Once you have developed a working relationship with a trusted lender, be sure to ask him if there are any special types of mortgages he can offer you. It never hurts to ask! And who knows, you just might be able to save some money on your refinance.