Mortgage Information
The largest purchase most individuals make in their lifetime is buying a home. Most home buyers live in each house they purchase for approximately five to seven years. Consequently, arranging for a mortgage with a bank or other lending institution is a commitment that should be given serious consideration so that you are sure you are obtaining the best financial terms and conditions available.
One of the ways to find out about your mortgage options is to speak with your real estate agent who should be knowledgeable about the various types of loans offered. Here at Pensacolahomestore, we will be happy to discuss your options with you and help you make the loan decision that is right for you.
Fixed Rate Mortgages. The interest rate for a Fixed Rate Mortgage is set at the time when the loan originates and remains the same for the length of the mortgage. For instance, the most common type of Fixed Rate Mortgage is one that is taken out for a thirty year period. On this type of mortgage, the rate you pay will be fixed for all thirty years. If you have made all your payments in a timely manner, at the end of the 30 th year, your loan will be fully paid off. This type of mortgage is beneficial to the borrower because the interest rate remains constant for the entire loan period. Regardless of the fluctuations in the economy, Fixed Rate Mortgages are not affected and the lender cannot make any additions to the amount of the mortgage.
Adjustable Rate Mortgages. Often referred to as an “ARM”, an Adjustable Rate Mortgage offers a fixed initial interest rate and a fixed initial monthly payment. These rates are “fixed” for a short period of time, however, and not for the life of the loan. After the initial period – which is usually from six months to five years – the interest rate as well as the monthly payments are adjusted on a regular basis to reflect the market interest rates which are based upon an index. Each lender has the option of using its own index and formula. Consequently, the borrower should be sure all terms and conditions of an ARM are clearly understood before committing to this type of mortgage.
Some lenders may require adjustments every three or six months while others only require adjustments once a year. The benefit of an Adjusted Rate Mortgage to the borrower is that the initial interest rate and initial monthly payment are lower than the Fixed Rate Mortgage interest rate and monthly payment for the introductory period – often referred to as a “teaser”. However, after this initial introductory period, the higher rates go into effect along with the corresponding changes based on the market index fluctuations.
Before signing any loan papers, it is important to be aware which type of mortgage fits in with your finances.
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