Home Mortgage Loans - Fixed Rate, Adjustable or Balloon, Which One Is Right For You?When you're shopping for a new home-especially for the first time-all the terms and expressions may be confusing and difficult to understand. Adjustable rate, fixed rate, balloon payment - how do you decide which is the right type of home mortgage for you if you're not even sure what each of them are? The name of the mortgage type usually has to do with how you'll pay for your loan - how the interest on the loan is being determined by the bank. The three major types of mortgages are fixed rate, adjustable rate and balloon payment. Each has advantages and disadvantages. Fixed Rate Mortgage With a fixed rate mortgage, you have a set interest rate for the entire life of the loan. The interest rate that you pay for your loan won't change - which means that you'll pay the same monthly payment for the entire length of the loan. This protects you from unexpected rises in interest rates that would increase your monthly payment. At the same time, should the interest rates drop, you will have the option of refinancing at a lower interest rate. Because the protections are largely on the side of the buyer with a fixed rate mortgage, interest rates on them are generally slightly higher than they would be on other types of mortgages. A fixed rate mortgage is the safest type. Because the payments are predictable, it's usually considered the most desirable type of mortgage. Always choose a fixed rate mortgage if interest rates are rising. Adjustable Rate Mortgage When you choose an adjustable rate mortgage, your monthly payment and interest rate will fluctuate with the current market interest rate. If the interest rate goes up, so will your monthly payment. If it drops, your monthly loan payment will as well. The adjustable rate is tied to an index, which is determined by the lender. Other terms of the mortgage are also determined by the lender. These include how often the interest rate is adjusted - anywhere from every 3-6 months to once a year, how much the interest rate can increase or decrease on any adjustment date, and whether there is a 'cap' on how high the interest rate can rise. Often, adjustable rate mortgages are advertised with extremely low interest rates, which will be in effect for a short period of time. When the introductory period is over, the mortgage rate will rise to its normal amount. Choose an adjustable rate mortgage when you have secure income that is likely to increase along with the economy. It's a good mortgage when interest rates are stable, or if the signs suggest that they're about to fall. Balloon Mortgages A balloon mortgage is often a last resort for home buyers who can't qualify for more traditional loans. The balloon mortgage has a fixed interest rate and monthly payments for a specific amount of time. At the end of that time, the entire loan comes due - hence the name 'balloon'. In practical terms, a balloon rate will give you a fixed monthly payment for several months. After that, you'll essentially have an adjustable rate mortgage. Choose a balloon mortgage loan for substantially lower initial rates, or if your credit limits the other types of mortgage that you can apply of qualify for. Now that you understand your options for mortgage loans, don't forget to shop around! The interest rates and fees can vary wildly from lender to lender, so make sure that you get the best deal that you can! To view our list of recommended mortgage lenders online, visit this page: Recommended Mortgage Lenders Online Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans. The site has informative articles and the latest finance news.
MORE RESOURCES updated Wed. May / 08 / 2024 Mortgage Credit Availability Increased in April | MBA Mortgage Bankers Association Best mortgage lenders for refinancing in May 2024 CNN Underscored Mortgage Interest Rates Today, May 7, 2024 | Rates Ease Thanks to Cooling Job Market Business Insider What Credit Score Do You Need To Refinance? Bankrate.com Average Mortgage Interest Rates: Mortgage Rates by Credit Score, Year, and Loan Type Business Insider 15-year refinance rates: Pros, cons and current lenders offers CNN Underscored Redfin’s $9.25 Million Agreement Ends Legal Battle Over Inflated Commissions – Forbes Advisor Forbes Mortgage Interest Rates Today, May 6, 2024 | Rates Are Still High, but You Could Save by Shopping Around Business Insider Best Mortgage Refinance Lenders of May 2024 Business Insider How to Refinance Your Mortgage NerdWallet Mortgage Refinance Rates: Compare Current Rates Business Insider Should You Refinance Halfway Through Your Mortgage? Bankrate.com Types of Mortgage Refinance Options Bankrate.com 30-Year Mortgage Refinance Rates Business Insider 10-year refinance rates: What to know CNN Underscored How To Get The Best Refinance Rate Bankrate.com Loan Modification Vs. Refinance Bankrate.com Will Mortgage Rates Go Down in 2024? What Homebuyers Should Expect Business Insider Should You Refinance Your Mortgage In 2024? Bankrate.com 15-Year Mortgage Refinance Rates: Compare Current Rates Business Insider Current mortgage refinance rates CNN Underscored Mortgage Interest Rates Today, May 2, 2024 | Rates Unlikely to Drop Until the Fed Starts Cutting Business Insider Best Mortgage Refinance Lenders In 2024 Bankrate.com VA Refinance Rates - Current VA Loan Refinance Rates Today Business Insider Best Refinance Lenders of May 2024: Refinance Your Mortgage The Motley Fool Current FHA Refinance Rates Today - Mortgages Business Insider When to Consider Refinancing Your Mortgage Business Insider 317,000 Former Art Institutes Students See $6 Billion in Student Loan Debt Canceled – Forbes Advisor Forbes Mortgage Interest Rates Today, May 1, 2024 | Rates Hold Steady at 7% Business Insider 30-year refinance rates: What to know CNN Underscored Refinance Requirements: What You Need to Refinance Your Home in 2024 The Mortgage Reports Mortgage Rate Forecast May 2024 Bankrate.com How To Refinance An Underwater Mortgage Bankrate.com Conventional Refinance Rates and Guidelines for 2024 The Mortgage Reports How Soon Can You Refinance a Mortgage? NerdWallet When to Refinance Mortgage: Is it Time? - Buy Side from WSJ The Wall Street Journal Pros and Cons of a Cash-Out Refinance Bankrate.com Should I Refinance My Mortgage Now? When to Refinance As Rates Drop Business Insider Office of Research blog: A look at cash-out refinance mortgages and their borrowers between 2013 to 2023 Consumer Financial Protection Bureau How To Refinance A Rental House Bankrate.com Mortgage Rates Chart | Historical and Current Rate Trends The Mortgage Reports
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