index is usually the London InterBank Offered Rate (LIBOR) or the US Fed discount rate. The interest rate of the ARM will be set at a certain percentage above the index until the next adjustment period. The ARM is usually stated as a 3/1, 5/1 or 7/1. The first number is the length of the initial interest rate, the second number is how often the rate will be adjusted thereafter.

An adjustable rate product is good for those that won’t be living in their home for very long, and can take advantage of the lower rate during their stay. Others that benefit from ARM products are those who are in career paths that offer fairly rapid (and sure) salary increases. That way, when the rate, and payment a

Choose The Correct Type of Mortgage and Save Thousands

It seems there are almost as many different types of mortgage loan products out there as there are mortgage holders. It’s kind of daunting, really. How are you supposed to pick through the myriad of different mortgages available these days? To make matters worse you’re regaled daily with all manner of mortgage ads from brokers, banks, and finance companies claiming they can get you the best mortgage. How is this possible? How can they all give you the best rate and fee structure? Well obviously they can’t, can they?

The truth is closer to what they’re all claiming than you realize, however. The truth behind many of the mortgage broker’s and banks advertising campaigns is that, for the most part, they all have very similar mortgage products they can offer you. Face it, money costs about the same, the Fed sees to that. In addition, you have to pay someone for all the ancillary services that go with getting a mortgage. These are known as closing costs, and you may hear the ads proclaiming loudly “No Closing Costs!!” Well, you might not have to pay for all those different services, but someone does. If you aren’t footing the bill, they’re either passing it along to someone else, rolling it into your mortgage (so you can pay interest on it for 15 or 30 years), or upping the mortgage interest rate you’ll pay so they can cover those costs.

Fixed Rate Mortgage

For starters, there are some broad categories of mortgages you’ll be faced with. The most basic, and the one that’s been with us the longest, is the fixed rate mortgage. As the name suggests, a fixed rate mortgage has the same interest rate for the term of the loan, usually 15 or 30 years. Typically you’ll get a lower interest rate on the 15 year mortgage, reflecting the lower risk the lender associates with a shorter term obligation. Recently longer terms have begun cropping up, mainly due to inflation of home prices. These can run up to 40 or 50 years! The longer term brings the monthly payment down, thus making homes more affordable for more buyers. These are especially prevalent in areas with higher priced homes, like California. The problem is that, with these longer terms, you’ll pay a higher interest rate, and pay it for a longer term. The upshot is that you’ll pay substantially more in total interest with these longer term mortgages.

Adjustable Rate Mortgage

The other type of mortgage many people are familiar with is the adjustable rate mortgage, normally referred to as an ARM. About 30% of mortgages in the U.S. are now ARMs, as opposed to about 5% only 10 years ago. With this type of mortgage, the interest rate is fixed at a lower rate for the first few years, and then it adjusts to a higher rate according to an index. The index is usually the London InterBank Offered Rate (LIBOR) or the US Fed discount rate. The interest rate of the ARM will be set at a certain percentage above the index until the next adjustment period. The ARM is usually stated as a 3/1, 5/1 or 7/1. The first number is the length of the initial interest rate, the second number is how often the rate will be adjusted thereafter.

An adjustable rate product is good for those that won’t be living in their home for very long, and can take advantage of the lower rate during their stay. Others that benefit from ARM products are those who are in career paths that offer fairly rapid (and sure) salary increases. That way, when the rate, and payment a

oker’s and banks advertising campaigns is that, for the most part, they all have very similar mortgage products they can offer you. Face it, money costs about the same, the Fed sees to that. In addition, you have to pay someone for all the ancillary services that go with getting a mortgage. These are known as closing costs, and you may hear the ads proclaiming loudly “No Closing Costs!!” Well, you might not have to pay for all those different services, but someone does. If you aren’t footing the bill, they’re either passing it along to someone else, rolling it into your mortgage (so you can pay interest on it for 15 or 30 years), or upping the mortgage interest rate you’ll pay so they can cover those costs.

Fixed Rate Mortgage

For starters, there are some broad categories of mortgages you’ll be faced with. The most basic, and the one that’s been with us the longest, is the fixed rate mortgage. As the name suggests, a fixed rate mortgage has the same interest rate for the term of the loan, usually 15 or 30 years. Typically you’ll get a lower interest rate on the 15 year mortgage, reflecting the lower risk the lender associates with a shorter term obligation. Recently longer terms have begun cropping up, mainly due to inflation of home prices. These can run up to 40 or 50 years! The longer term brings the monthly payment down, thus making homes more affordable for more buyers. These are especially prevalent in areas with higher priced homes, like California. The problem is that, with these longer terms, you’ll pay a higher interest rate, and pay it for a longer term. The upshot is that you’ll pay substantially more in total interest with these longer term mortgages.

Adjustable Rate Mortgage

The other type of mortgage many people are familiar with is the adjustable rate mortgage, normally referred to as an ARM. About 30% of mortgages in the U.S. are now ARMs, as opposed to about 5% only 10 years ago. With this type of mortgage, the interest rate is fixed at a lower rate for the first few years, and then it adjusts to a higher rate according to an index. The index is usually the London InterBank Offered Rate (LIBOR) or the US Fed discount rate. The interest rate of the ARM will be set at a certain percentage above the index until the next adjustment period. The ARM is usually stated as a 3/1, 5/1 or 7/1. The first number is the length of the initial interest rate, the second number is how often the rate will be adjusted thereafter.

An adjustable rate product is good for those that won’t be living in their home for very long, and can take advantage of the lower rate during their stay. Others that benefit from ARM products are those who are in career paths that offer fairly rapid (and sure) salary increases. That way, when the rate, and payment a

hose costs.

Fixed Rate Mortgage

For starters, there are some broad categories of mortgages you’ll be faced with. The most basic, and the one that’s been with us the longest, is the fixed rate mortgage. As the name suggests, a fixed rate mortgage has the same interest rate for the term of the loan, usually 15 or 30 years. Typically you’ll get a lower interest rate on the 15 year mortgage, reflecting the lower risk the lender associates with a shorter term obligation. Recently longer terms have begun cropping up, mainly due to inflation of home prices. These can run up to 40 or 50 years! The longer term brings the monthly payment down, thus making homes more affordable for more buyers. These are especially prevalent in areas with higher priced homes, like California. The problem is that, with these longer terms, you’ll pay a higher interest rate, and pay it for a longer term. The upshot is that you’ll pay substantially more in total interest with these longer term mortgages.

Adjustable Rate Mortgage

The other type of mortgage many people are familiar with is the adjustable rate mortgage, normally referred to as an ARM. About 30% of mortgages in the U.S. are now ARMs, as opposed to about 5% only 10 years ago. With this type of mortgage, the interest rate is fixed at a lower rate for the first few years, and then it adjusts to a higher rate according to an index. The index is usually the London InterBank Offered Rate (LIBOR) or the US Fed discount rate. The interest rate of the ARM will be set at a certain percentage above the index until the next adjustment period. The ARM is usually stated as a 3/1, 5/1 or 7/1. The first number is the length of the initial interest rate, the second number is how often the rate will be adjusted thereafter.

An adjustable rate product is good for those that won’t be living in their home for very long, and can take advantage of the lower rate during their stay. Others that benefit from ARM products are those who are in career paths that offer fairly rapid (and sure) salary increases. That way, when the rate, and payment a

These are especially prevalent in areas with higher priced homes, like California. The problem is that, with these longer terms, you’ll pay a higher interest rate, and pay it for a longer term. The upshot is that you’ll pay substantially more in total interest with these longer term mortgages.

Adjustable Rate Mortgage

The other type of mortgage many people are familiar with is the adjustable rate mortgage, normally referred to as an ARM. About 30% of mortgages in the U.S. are now ARMs, as opposed to about 5% only 10 years ago. With this type of mortgage, the interest rate is fixed at a lower rate for the first few years, and then it adjusts to a higher rate according to an index. The index is usually the London InterBank Offered Rate (LIBOR) or the US Fed discount rate. The interest rate of the ARM will be set at a certain percentage above the index until the next adjustment period. The ARM is usually stated as a 3/1, 5/1 or 7/1. The first number is the length of the initial interest rate, the second number is how often the rate will be adjusted thereafter.

An adjustable rate product is good for those that won’t be living in their home for very long, and can take advantage of the lower rate during their stay. Others that benefit from ARM products are those who are in career paths that offer fairly rapid (and sure) salary increases. That way, when the rate, and payment a

index is usually the London InterBank Offered Rate (LIBOR) or the US Fed discount rate. The interest rate of the ARM will be set at a certain percentage above the index until the next adjustment period. The ARM is usually stated as a 3/1, 5/1 or 7/1. The first number is the length of the initial interest rate, the second number is how often the rate will be adjusted thereafter.

An adjustable rate product is good for those that won’t be living in their home for very long, and can take advantage of the lower rate during their stay. Others that benefit from ARM products are those who are in career paths that offer fairly rapid (and sure) salary increases. That way, when the rate, and payment adjusts, there will be funds available to cover the additional expense. In many cases people initially take an ARM, then refinance to a fixed rate product before the rate adjusts upward.

Option ARM

A newer mortgage product that’s beginning to enjoy some popularity is a variation of the ARM called the option ARM. As you might assume from the name, the option ARM allows borrowers to choose between different payment options. These are based upon either a fixed term mortgage payment, an ARM payment, or an interest only payment. In many cases these loans have very low initial payments. As with a traditional ARM, the lower payment can help borrowers to simply afford a home in expensive areas, or a nicer home than they could otherwise. The initial interest rate of an option ARM tends to be even lower than a traditional ARM.

These mortgages can be advantageous for borrowers that have uneven cash flow situations, such as commission sales people, business owners, or seasonal workers. With such a product, the amount of the payment can be varied to suit the borrower’s current financial situation. The cost of that flexibility however, is additional risk for the borrower. The risk is that, by making interest only payments for too many months, the borrower will reach a situation of negative amortization. If the negative amortization reaches a certain point, termed the “recast cap”, the mortgage reverts to a fixed rate loan with payments sufficient to amortize the entire loan. Needless to say, this can result in a mammoth monthly payment increase that many borrowers are ill equipped to afford.

Before you get any mortgage, really think things through. Are you really going to move out in a few years? How secure is your job, anyway? Are you likely to take a new job or be transferred to another location? Is your home suitable for your growing family, or might you decide to move up to a larger home? Only then will you be able to decide which the best mortgage product is for you.