Thirty-Year Fixed Rate Mortgage
Fifteen-Year Fixed Rate Mortgage
Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
Adjustable Rate Mortgage (ARM)
2/1 Buy Down Mortgage
Annual ARM
Monthly ARM
Negative Amortization (Neg. Am)
Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has a
constant interest rate and monthly payments that
never change. This may be a good choice if you
plan to stay in your home for seven years or
longer. If you plan to move within seven years,
then adjustable-rate loans are usually cheaper.
As a rule of thumb, it may be harder to qualify
for fixed-rate loans than for adjustable rate
loans. When interest rates are low, fixed-rate
loans are generally not that much more expensive
than adjustable-rate mortgages and may be a better
deal in the long run, because you can lock in the
rate for the life of your loan.
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Fifteen-Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period
and features constant monthly payments. It offers
all the advantages of the 30-year loan, plus a
lower interest rate -- and you'll own your home
twice as fast. The disadvantage is that, with a
15-year loan, you commit to a higher monthly
payment. Many borrowers opt for a 30-year
fixed-rate loan and voluntarily make larger
payments that will pay off their loan in 15 years.
This approach is often safer than committing to a
higher monthly payment, since the difference in
interest rates isn't that great.
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Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
These increasingly popular ARMS -- also called 3/1,
5/1 or 7/1 -- can offer the best of both worlds:
lower interest rates (like ARMs) and a fixed
payment for a longer period of time than most
adjustable rate loans. For example, a "5/1 loan"
has a fixed monthly payment and interest for the
first five years and then turns into a traditional
adjustable-rate loan, based on then-current rates
for the remaining 25 years. It's a good choice for
people who expect to move (or refinance) before or
shortly after the adjustment occurs.
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Adjustable Rate Mortgages (ARM)
When it comes to ARMs there's a basic rule to
remember...the longer you ask the lender to charge
you a specific rate, the more expensive the loan.
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2/1 Buy Down Mortgage
The 2/1 Buy-Down Mortgage allows the borrower to
qualify at below market rates so they can borrow
more. The initial starting interest rate increases
by 1% at the end of the first year and adjusts
again by another 1% at the end of the second year.
It then remains at a fixed interest rate for the
remainder of the loan term. Borrowers often refinance
at the end of the second year to obtain the best
long-term rates. However, keeping the loan in
place even for three full years or more will keep
their average interest rate in line with the
original market conditions.
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Annual ARM
This loan has a rate that is recalculated once a year.
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Monthly ARM
With this loan, the interest rate is recalculated
every month. Compared to other options, the rate
is usually lower on this ARM because the lender
is only committing to a rate for a month at a time,
so his vulnerability is significantly reduced.
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Negative Amortization (Neg. Am) Loan
This is a deferred-interest loan which is very
powerful -- and the most misunderstood mortgage
program because of its many options. Basically,
the lender allows the borrower to make monthly
payments that are less than the accruing interest.
Therefore, if the borrower chooses to make the
minimum monthly payment, the loan balance will
increase by the amount of interest not paid on the
loan. The power of this loan lies in the borrower's
ability to choose between making the full loan
payment, or the minimum payment, or any amount in
between. If a borrower's income varies throughout
the year (due to commissions, bonuses, etc.), the
borrower can make a lower payment during the "lean
times", and then make higher payments when funds
are readily available.
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