Your mortgage will be one of the biggest investments you make. Choosing the right type of mortgage will save you a lot of money and headaches down the road. Here are the basics of mortgage loan types. Adjustable Rate Mortgage Loans Adjustable Rate Mortgages typically come with a very low introductory interest rate. This rate is only valid for a period of time specified in the loan contract. At the end of the introductory period the mortgage lender will adjust the interest rate and payment amount. Your loan contract will specify regular intervals where the lender will adjust your interest rate and monthly payment amount. Adjustable Rate Mortgages come with much greater risk for the borrower; if you have a tight budget and little tolerance for financial risk, stick with a fixed interest rate mortgage. Fixed Interest Rate Mortgage Loans The most popular mortgage is the traditional fixed interest rate loan. This is the safest mortgage option as your monthly payment does not change over the life of the mortgage. If you have little tolerance for financial risk and want a mortgage payment that does not change, this is the mortgage loan for you. Balloon Mortgages Balloon mortgages are a useful tool for individuals that need short-term financing with a low monthly payment. At the end of the loan period specified in the contract the entire balance becomes due. There is risk associated with balloon mortgages; if you are unable to pay off the balance or refinance the loan you risk losing your home. Jumbo Mortgages If you need to borrow more than $417,000 for your home, you may need to seek financing from a jumbo mortgage lender. Traditional mortgage lenders only lend up to the limits established by Freddie Mac and Fannie Mae. In 2006 this limit is $417,000. Jumbo mortgages come with higher interest rates because there is more risk for the mortgage lender; this results in a significantly higher monthly payment amount. Because of the additional expenses associated with jumbo mortgages loans it is important to do your homework |
