With today's lower mortgage interest rates, many homeowners are looking to refinance their first mortgage on their home, and begin to shop with mortgage brokers or other lenders...
It gets a little confusing sometimes, when trying to incorporate a second mortgage or home equity loan, and homeowners begin to shop with mortgage brokers or other lenders, and it's hard to determine if the mortgage company is charging you fees that are too high, or if you are asking for the best loan for your current circumstances. First time home buyers, too, can find this step in home buying a daunting process. It's best to visit the web site of several lenders to compare fixed and adjustable rate mortgages for your home...
There are three basic types of home loans:
• Fixed rate mortgages
• Adjustable rate mortgages
• Balloon mortgages
Fixed-rate mortgages, usually for 15, 20 or 30 years, ensure that your interest rate and monthly payment stays the same during the life of the loan. The shorter the duration of the loan, the higher the payment, but you could save tens of thousands of dollars in interest over the life of the loan by going with a 15 year over a 30 year loan.
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A fixed rate mortgage is best if you plan to stay in your home a long time; if the current interest rate is low when you get your loan; or if you want the certainty of a steady monthly payment. Even if you choose a 30 year loan, it is usually best to prepay as much as you can in the early years of your mortgage, since your regular payment is often 80 to 90% interest at first. Any extra payment on the principal will provide a huge return in later years.
Adjustable rate mortgages
Adjustable rate mortgages normally start off lower then fixed rate mortages, but are often adjusted for interest rate changes, so your monthly payments often increase, sometimes several times over the course of the loan.
The adjustable-rate mortgage, or ARM, works well for those who will likely be moving or refinancing in a few years, or those who expect their income to increase in the near future.
Balloon mortgages
A balloon mortgage usually has a similar payment schedule to a 30-year loan, but the loan's remaining principal is normally due in full in five or seven years.
This loan can be risky, and is often used when people are buying bare land, which they later intend to build on, so the balloon mortgage will be rolled over into a new first mortgage on the future home.
Fees and clauses
Watch out for, and avoid, loans that have a prepayment penalty, since you could save thousands of dollars by prepaying your loan. Also, be sure to compare fees and points lenders want to charge for your loan.
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Judy Leiser is a writer for http://paradoxpro.com . Read more articles on home and garden topics in the Home Style News email newsletter. Subscribe free at http://ParadoxPro.com/ezine.html
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