Mortgage Information
Types of Mortgages
Fixed Rate Mortgage A fixed rate mortgage maintains the same interest rate throughout the entire life of the loan. You can typically secure a fixed rate mortgage in 10, 15, or 30 year term. The amortization is negotiable with your lender according to your specific needs. This type of mortgage is good for a home buyer who wishes to have a consistent mortgage payment every month, and who plans on living in the home for 10 or more years. Adjustable Rate Mortgages Adjustable rate mortgages have interest rates that change according to financial indexes often dictated by the current market. This means that your payment can fluctuate according to a change in the index. This will sometimes result in fluxuating payments, so the home owner must be prepared for possible increases of the monthly payment. The interest rates are usually more favorable than a fixed rate loan. If you enter into this type of fluctuating loan, you can always re-negotiate and refinance at a later date as long as your Adjustable Rate Mortgage provides that option on the anniversay of the loan. Balloon Mortgage Balloon mortgages are considered higher risk due to the large amount owed at the end of the term of the loan. The term of the loan is negotiable; however 3, 5, and 7 year balloons are common. The interest rate for the life of the loan stays consistent and at the end of the term the remainder of the loan must be paid in full. The home owner must be prepared for this final, possibly very large payment. Interest Only Mortgage Interest only mortgages are loans that allow the borrower to pay only the interest on the loan for a predetermined period of time. The principal of the loan is not reduced during this period, leaving the homeowner a lower monthly payment over a short term. However, once this initial "interest only" period expires the payments increase to include repayment of the principal and are higher than a ordinary fully amortized loan. The greater duration of a interest only loan, the higher the payments will be when it converts to principal and interest. How Mortgages Work Excluding property taxes and insurance, a traditional fixed-rate mortgage payment consists of two parts; interest on the loan and payment towards the principal. Many people are surprised to learn that the amount you pay towards interest verses principal varies dramatically over the life of the loan. This occurs because the amortization of the mortgage loan earns the lender the greatest interest return when the principal balance is the highest. For further details, or more information contact Hilton Realtors at (417) 882-9936