The basic difference between the types of mortgages available when you seek to finance the purchase of a new home is how the interest rate is determined. Basically, there are two types of mortgages - fixed rate mortgages and adjustable rate mortgages. If you choose a fixed-rate mortgage, your interest rate paid during the term of the loan remains the same, regardless of the general interest rate. In adjustable-rate mortgages, interest rates are adjusted on a regular basis based on the index that has risen and fallen with the economic times. Both of these have advantages and disadvantages. Isn't it easy to answer "better, fixed-rate mortgages or adjustable-rate mortgages?"
The main advantage of fixed-rate mortgages is stability. Since the interest rate remains unchanged throughout the loan, your monthly payments are predictable. You can count on your monthly mortgage payment to be the same amount every month. On the other hand, as lending institutions give up opportunities to increase interest rates in the face of rising general interest rates, interest on fixed-rate mortgages may be higher than the interest rate on adjustable-rate mortgages.
Fixed-rate mortgages are most meaningful to those who will live at home for many years. Although the initial payment may be greater than the adjustable rate mortgage, extending the payment time can minimize the impact on the budget.
Adjustable interest rate is a specified period of adjustment to take into account the rise or fall of the standard interest rate. In general, the adjustment period is annual - in other words, the loan company has the right to adjust the mortgage rate every year based on the selected index. Although adjustable-rate mortgages make the most sense when interest rates fall, it is dangerous to expect continued declines in interest rates.
Lenders usually offer adjustable-rate mortgages, the "announcement" rates for the first year. However, after the first year, your mortgage interest rates will soar. Even so, there are limits to the extent to which adjustable rates can actually be adjusted. It depends on the index you choose and the loan terms you agree with. For example, you can accept a one-year loan with an adjustment rate of 2.3%, for example, a 4.1% adjustable-rate mortgage during the first adjustment period.
Finally, there is a new loan here. A mix of adjustable-rate mortgages and fixed-rate mortgages, which are known as "delay-adjustable" mortgages. Essentially, you lock in fixed interest rates for many years - for example 3 or 7 or 10. At the end of the period, the loan will become a 1-year adjustable rate mortgage, according to the terms of the mortgage or financial institution that you have signed in the agreement.
Orignal From: Fixed Rate Mortgages and Adjustable Rate Mortgages
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