Fixed-rate mortgages are the most common way to finance a home in the United States. A fixed-rate mortgage, often referred to as the most straight forward of mortgages, is a fully amortizing loan where the interest rate on the note remains the same through the life of the loan, as opposed to loans where the interest rate may adjust or "float". The most popular fixed rate term is 30 year, but a 15 year term is not uncommon.
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Benefits of a Fixed Rate Mortgage
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A primary benefit of fixed rate mortgages is the stability of monthly payments, while allowing the home owner to refinance their loan if interest rates fall
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Fixed rate mortgages are easy to understand and vary little from lender to lender
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The borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise
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A 15 year fixed rate mortgage saves considerable interest expense, and provides faster equity buildup
An Adjustable Rate Mortgage (ARM) is a mortgage with an initial interest rate that typically lasts for a few years, and then adjusts periodically after that. Your interest rate, and thus your monthly mortgage payment, will most likely increase after the Adjustable Rate Mortgage's introductory period.
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What You Need to Know About an Adjustable Rate Mortgage
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Most ARMs are based on a 30-year loan term, one of the few constants in this type of home financing. The length of the initial rate period, the interest rate thereafter, and the value of your home are all subject to change
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Typically, ARM loans come with a ceiling or a cap, which ensures that your rate won't spiral out of control at the end of the initial rate period.
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An ARM is more of a calculated risk than a gamble, but it can be very rewarding to a borrower in the in the short term
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Home buyers often use the adjustable rate mortgage to obtain a lower initial mortgage rate and payment, then aggressively pay down their loan principal with extra payments
Choosing the Right Mortgage Loan Program
We can't emphasize enough how important it is to work with a knowledgeable Mortgage Professional. Every homebuyer needs an industry pro that understands the many loan programs available, and is able to determine which loan is appropriate for a particular borrower.
We realize there are many different types of borrowers who seek affordable home financing, and we understand that our job is to locate affordable financing that works for you.
