The fixed rate mortgage:
Fixed rate mortgage is among the commonly used type of mortgage. Many prefer this because the interest rate is predetermined and it remains the same throughout the life of the mortgage. This makes it predictable. Thus, borrowers will know how much they will pay each month. There will be no surprises and unexpected increases in monthly payments.
There are different types of fixed rate mortgage. You can use the 15-year mortgage, the 30-year mortgage, the bi-weekly mortgage or the convertible mortgage. Some would want to pay their mortgage right away while others use the longer term to make the monthly payments affordable.
The 30-year mortgage is a popular choice for most because this makes the monthly payment cheaper and it comes with a low interest rate. Although this may be a good term for most, this does not apply for everyone. Because of these, other terms are made available like 20-year, 25-year and the 40-year fixed rate mortgage.
Many would also prefer the 15-year mortgage. This is ideal for most even if the monthly payment is more expensive. Although monthly payments are more expensive, they can save a lot on interest. Moreover, they can pay off the mortgage sooner. By the time their children go to college, they are mortgage-free.
The adjustable rate mortgage:
Another type of mortgage is the adjustable rate. This is different from the above type because the interest rate can change. There are several factors affecting the changes of the interest rate. There are the different indices. The current state of the market can also influence it. Many choose this because the initial interest is low. However, this can also be risky as the interest rate can go up in the future.
In order to understand the adjustable rate mortgage, you need to learn about the different factors affecting it. These are the initial rate, its adjustment interval, the different indices considered by the lenders and the margins they add to these indices to determine the change in the interest rate. Although the changes in the interest are risky, borrowers are not worried. The rate can increase but not beyond the rate caps. This ensures that the borrower can still afford it. There are also monthly payments caps that lenders follow.
In order to find the best mortgage term for you, you need to make sure that you understand the different types of mortgage. We hope this helps!
Brought to you by Ezinearticles. Written by Roby Hicks.