Mortgage Loans: Fixed-Rate, Adjustable-Rate, and Interest-Only
February 05, 2013
The amount of mortgage loans on the market today, along with varying mortgage rates can make the process of choosing the right mortgage loan overwhelming, especially for first time homebuyers. However, there are really just two main types of mortgage loans; fixed rate mortgages and adjustable-rate mortgages. An interest-only option can be one of the features of any type of loan but they are usually only available for a certain amount of time. All of these mortgage loans have benefits depending on the buyer's financial goals. A professional mortgage broker can help prospective homeowners evaluate their financial situation and navigate through the multitude of mortgage loans available.
Fixed-rate mortgage loans offer exactly what their name implies, a fixed interest rate along with a principal and interest payment that wont change over the life of the loan. The rate that is locked in at the beginning is completely unaffected by changes in the economy and the stock market. It will also remain the same despite variances in inflation. Fixed-rate mortgage loans are offered in 10, 15, 20, 30, and 40-year terms. Shorter loan terms come with lower interest rates and are paid off more quickly. Because the loan term is shorter the buyer also pays much less total interest over the life of the loan.
Generally fixed-rate mortgage loans are chosen when the goal is to have steady and predictable payments over the life of the loan. The predictability affords homeowners the opportunity to budget and plan without the worry of changing mortgage rates. However, the mortgage rates and payments are typically higher than adjustable-rate mortgage loans.
Adjustable rate mortgage loans typically begin at a lower interest rate and then adjust periodically after the introductory period is over. The mortgage rates are lower on the onset because the borrower assumes the risk of potentially changing interest rates. The benefit of choosing adjustable-rate mortgage loans is that they allow the initial mortgage payments to be much more affordable. However, after a determined amount of time, the mortgage rates are adjusted according to an interest rate index. The adjustments happen periodically and can cause the mortgage loan payments to increase or decrease.
Many individuals who are interested in selling or refinancing choose this type of loan because they typically intend to sell or refinance before the interest rate increases. In some cases, borrowers choose this type of loan when they expect to receive an increase in income. Because of the potential variance in payment size, it is critical that a trusted mortgage broker be consulted when deciding what mortgage loans are appropriate. Brokers are professionals who can help ensure that borrowers don't get themselves in a position of defaulting on their loan.
Interest-Only Mortgage Option
Interest-only options allow the borrower to pay only the interest on their mortgage loan for a set amount of time. This allows for lower payments to be made but the balance on the loan does not decrease. After the interest-only period is over the payments increase significantly. Individuals who are looking to move, refinance, or predict a large increase in their income before the interest-only period ends, are typically the ones who take advantage of this type of loan feature. Mortgage loans with the interest-only feature should be managed carefully as they can demand lump-sum payments.
Fortunately, determining the best mortgage loans for each individual can be hassle-free with the help of a professional mortgage broker. Taking the guesswork out of the process and providing mortgage loans that position clients toward a secure financial future is of critical importance. Since a mortgage loan is likely the largest investment an individual will ever make, it is vital that prospective buyers consult a reputable mortgage broker. Borrowers will experience freedom, peace of mind, and endless amounts of security when the right mortgage loan is secured.
Blanket Mortgage is committed to helping clients achieve their financial goals and secure the most superior Miami mortgage loans
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