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Mortgage Loans Explained In Plain English
With the many different kinds of mortgage loans out there, choosing the right one for your needs can be a difficult task. The following points will help you understand the pros and cons of the different types of mortgage loans available to you.
What are the main types of mortgage loans?
There are two main types of mortgage loans-fixed-rate and adjustable-rate mortgages.
A fixed-rate mortgage comes with an interest rate that will never change over the 15, 20 or 30 years that the loan will last.
In contrast, the interest rate of an adjustable-rate mortgage will change. The rates are usually attached to an interest rate index-the LIBOR rate (London Inter-Bank Offer Rate) is a popular one-and your payments will go up and down if the indexes change.
If I get a fixed-rate mortgage loan, what should I keep in mind?
Fixed-rate mortgages offer stability above all. You know exactly what interest rate you will be paying. If you think that your income is not going to change much over the coming years, or if you are planning to stay in your house for a long time, then a fixed mortgage loan is a good option for you.
On the flipside, stability comes at a price. You will initially pay higher interest rates than in an adjustable-rate mortgage loan and you will need to put a higher down payment (somewhere between 10 to 20 percent of the loan) into the mortgage. If you don't have enough money to afford a high down payment, you will need to get Private Mortgage Insurance (PMI), which will increase your monthly payments.
What should I consider when getting an adjustable-rate mortgage loan?
An adjustable-rate mortgage loan initially gives you a lower interest rate than a fixed one. Many loans give you three to five years during which you pay a low fixed interest rate, and then the rate begins to fluctuate with the market. Some loans will put caps on how much your rate can change from year to year to protect you from market fluctuations. The risk with this type of loan is that interest rates might go up, but then again, interests can also go down and your payments will go down with them.
If you are not planning to be at your house for the long haul or you are planning to sell, then this loan is a better option for you.
How can I compare different mortgage loans?
Mortgage brokers are required by law to provide you with an Annual Percentage Rate (APR). This figure adds up all your expenses (property taxes, insurance, loan fees, interest payments, etc.) and expresses them as a percentage of your loan. For example, a loan might have a one percent interest rate, but when you add all the extra expenses, you will actually pay 1.5 percent. The APR is the best way to compare mortgage loans and decide which one offers you the best deal.
How will mortgage brokers decide whether I can get a mortgage loan?
Mortgage brokers are looking for indicators that tell them that you can pay the loan back. Among the things they will look at are your credit history and whether you have had stable employment for the last two years. It is usually a good idea to ask for a copy of your credit history before you go to your mortgage broker.
Mortgage brokers use a formula called 28/36 to decide if you can afford your mortgage loan payments. This means that your mortgage payments cannot be higher than 28 percent of your income and your total credit payments (for credit cards or other loans, including your mortgage) cannot be higher than 36 percent.
Joel Meadowridge is the editor for the Mortgage Broker National Directory where you will find more information about mortgage loans and a directory of mortgage brokers located in major cities across the United States.
MORE RESOURCES updated Thu. September / 24 / 2020
Refinancing Your Mortgage Is About to Get More Expensive The Wall Street Journal
Mortgage and refinance rates today, September 24, 2020 | Mortgage Rates, Mortgage News and Strategy - The Mortgage Reports
Mortgage and refinance rates today, September 24, 2020 | Mortgage Rates, Mortgage News and Strategy The Mortgage Reports
How to refinance your mortgage in 5 easy steps Fox Business
A record number of borrowers can now save on a mortgage refinance, as rates set another historic low - CNBC
A record number of borrowers can now save on a mortgage refinance, as rates set another historic low CNBC
Mortgage lenders are adding the refinancing fee. You can still avoid it if you act now. - Bankrate.com
Mortgage lenders are adding the refinancing fee. You can still avoid it if you act now. Bankrate.com
How to refinance your mortgage without closing costs Fox Business
How often can you refinance your mortgage? Fox Business
Mortgage and refinance rates today, September 15, 2020 | Mortgage Rates, Mortgage News and Strategy - The Mortgage Reports
Mortgage and refinance rates today, September 15, 2020 | Mortgage Rates, Mortgage News and Strategy The Mortgage Reports
Refinance your home before December 1 to avoid paying a new fee Business Insider
How and Why to Refinance Your Mortgage: A Step-By-Step Guide ActionNewsJax.com
Mortgage Refinance Calculator Clark.com
Should I refinance my mortgage? A financial planner explains Business Insider
When Should I Refinance With a No Closing Cost Mortgage? Clark.com - Clark Howard
Jump in U.S. Mortgage Refinancing Point2 Homes
Clark Howard’s Special Rule for Refinancing Your Mortgage Clark.com - Clark Howard
15-year mortgage rate hits new record low Bankrate.com
Coronavirus is driving a home renovation boom: Most popular projects, plus financing tips - Bankrate.com
Coronavirus is driving a home renovation boom: Most popular projects, plus financing tips Bankrate.com
What to consider when retiring and refinancing your home Washington Post
Refresher on The New Refi Fee and Its Effect on Mortgage Rates Mortgage News Daily
Millennials drive huge VA home loan refinance boost in Hampton Roads - The Virginian-Pilot - Virginian-Pilot
Millennials drive huge VA home loan refinance boost in Hampton Roads - The Virginian-Pilot Virginian-Pilot
Record number of banks offering cashback of up to $4000 for moving your mortgage, but is it worth it? - 9News
Record number of banks offering cashback of up to $4000 for moving your mortgage, but is it worth it? 9News
Seven Out of 10 Homeowners Who Research Refinancing Get Unwanted Sales Pitches: Survey - Credible News
Seven Out of 10 Homeowners Who Research Refinancing Get Unwanted Sales Pitches: Survey Credible News
United Shore seeks to outpace Rocket in mortgage war The Detroit News
What You Should Know About Non-Bank Mortgage Lenders The Motley Fool
Homeowners Are Gaining Equity. Here's Why That's a Good Thing The Motley Fool
Mortgage refinance: Everything you need to know Fox Business
The Median U.S. Home Value Has Reached a Record High -- and That's Bad News for Buyers - The Motley Fool
The Median U.S. Home Value Has Reached a Record High -- and That's Bad News for Buyers The Motley Fool
How to get the best mortgage refinance rates Fox Business
10 things to know before refinancing your mortgage Fox Business
Mortgage Associate Charlotte Agenda
When should you refinance your mortgage? Fox Business
Compare Today's Mortgage Refinance Rates: Sep 23 Credible News
How to get a low-cost mortgage refinance Bankrate.com
Mortgage refinancing is about to get more expensive Pittsburgh Post-Gazette
How does mortgage refinancing work? Bankrate.com
Refinancing Your Mortgage? Those Rock-Bottom Interest Rates Aren’t for You - The Wall Street Journal
Refinancing Your Mortgage? Those Rock-Bottom Interest Rates Aren’t for You The Wall Street Journal
Should you refinance your mortgage? Tennessean
Mortgage refinance applications spike 79% as homeowners rush to take advantage of lower rates - CNBC