Understanding Mortgages and Choosing the Best One to Suit Your Needs
Thursday, June 25, 2009
Mortgages are extremely handy financial devices which many homeowners take advantage of these days. They allow individuals to finance their home which provides them with other benefits as a result thereof. For example, by obtaining a mortgage on the home, the homeowner can pay off their house little by little and still have enough money left over each month for other pertinent living expenses. The mortgage is a wonderful tool which individuals should consider if they are interested in financing the purchase of a home. Prior to signing loan documents, one should have a firm grasp of the different types of mortgages so that they are able to choose the best one for their needs. Fixed Rate Mortgages
Fixed rate mortgages are one type of mortgage that is available to homeowners. The fixed rate mortgage is set for a certain number of years at a particular interest rate. Therefore, over the life of the loan the homeowner will know exactly how much they are paying in principal and how much they are paying in interest. The interest of the loan will not change during that time period. This is a good type of loan for those who are uncertain as to what the future interest rates will be and wish to lock in a good rate right in the beginning. In addition, homeowners like fixed rate mortgages as they will always know just how much money they need to put aside each month in order to pay the mortgage on their home.
Adjustable Rate Mortgages
Another type of mortgage which many homeowners express an interest in is that of the adjustable rate mortgage. With an adjustable rate mortgage, the interest rate on the loan will fluctuate depending upon how the market is doing at that point in time. Therefore, an individual's monthly payment can vary when the interest rate is either increased or decreased. There are a few different pros and cons associated with the adjustable rate mortgage.
As for the positive aspects of the adjustable rate mortgage, a homeowner may be able to reap the benefits of a favorable interest rate and therefore pay less than they normally would had the mortgage been fixed. Secondly, individuals may be able to start out their mortgage with a low interest rate right in the beginning which is an appealing trait to many.
For those who look at the negative aspects of adjustable rate mortgages, they may discover that the interest rate hits a high level and stays there for a while which means that they have to pay much more each month than they did in the beginning. Also, adjustable rate mortgages can be unpredictable by nature and those who are on a set budget may worry that the rates will be too high for them to handle down the road.
Which Is Better?
When deciding which one to select, homeowners must determine whether they want a sure thing or whether they want to take a chance that their interest rate will be favorable throughout the life of the loan. In the end, it is up to the homeowner to look at their current and potential future financial state in order to make an informed decision whether to go with a fixed rate mortgage or adjustable rate mortgage.
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Fixed rate mortgages are one type of mortgage that is available to homeowners. The fixed rate mortgage is set for a certain number of years at a particular interest rate. Therefore, over the life of the loan the homeowner will know exactly how much they are paying in principal and how much they are paying in interest. The interest of the loan will not change during that time period. This is a good type of loan for those who are uncertain as to what the future interest rates will be and wish to lock in a good rate right in the beginning. In addition, homeowners like fixed rate mortgages as they will always know just how much money they need to put aside each month in order to pay the mortgage on their home.
Adjustable Rate Mortgages
Another type of mortgage which many homeowners express an interest in is that of the adjustable rate mortgage. With an adjustable rate mortgage, the interest rate on the loan will fluctuate depending upon how the market is doing at that point in time. Therefore, an individual's monthly payment can vary when the interest rate is either increased or decreased. There are a few different pros and cons associated with the adjustable rate mortgage.
As for the positive aspects of the adjustable rate mortgage, a homeowner may be able to reap the benefits of a favorable interest rate and therefore pay less than they normally would had the mortgage been fixed. Secondly, individuals may be able to start out their mortgage with a low interest rate right in the beginning which is an appealing trait to many.
For those who look at the negative aspects of adjustable rate mortgages, they may discover that the interest rate hits a high level and stays there for a while which means that they have to pay much more each month than they did in the beginning. Also, adjustable rate mortgages can be unpredictable by nature and those who are on a set budget may worry that the rates will be too high for them to handle down the road.
Which Is Better?
When deciding which one to select, homeowners must determine whether they want a sure thing or whether they want to take a chance that their interest rate will be favorable throughout the life of the loan. In the end, it is up to the homeowner to look at their current and potential future financial state in order to make an informed decision whether to go with a fixed rate mortgage or adjustable rate mortgage.
