The two most common mortgages are the fixed mortgages and the adjustable mortgages. We will examine the similarities and differences with these two loans to help you understand which loan might be best for you.
Fixed mortgages are mortgages with a fixed interest rate. The fixed mortgages will have the same interest rate whether you hold the mortgage for two years or thirty years. Fixed mortgages tend to last for a longer duration because individuals recognize a great interest rate when they have it. They don t want to have to worry about their repayment. Fixed mortgages can be a little hard to obtain depending on your financial status. Typically fixed mortgages offer a better rate because you hold them longer, and to be awarded the mortgage you have a better credit history.
Adjustable mortgages are loans with a variable interest rate. This means the adjustable mortgages interest rate can increase or decrease according to the current market. If the market experiences trouble the interest rate on the adjustable mortgages tend to go up. Usually the only time an adjustable mortgage s rate will decrease is if the base rate decreases significantly. In other words if the Federal Reserve Bank does a three quarter percent reduction like they did early in 2008 then you might see your adjustable mortgages rate decrease. Adjustable mortgages tend to last for a shorter time period than the fixed mortgages. One reason for the shorter period is the rate. Since the rate can fluctuate and become too expensive during the repayment period a person will remortgage to fixed mortgages once their circumstances improve.
In other words when their credit history improves these individuals can get a better loan than the adjustable mortgages. Adjustable mortgages tend to be short term solutions with penalties and balloon payments at the end, which differs from the fixed mortgages. A fixed mortgage can be paid off at any time because the company assumes you will hold on to the great rate for a while. Adjustable mortgages have a prepayment penalty.
If you pay the mortgage off during the penalty period you have to pay an additional amount to the loan company. If you wait until after that period, which is usually two or three years, you don t have to concern yourself with the penalty. If the mortgage is adjustable then you might have to pay it off in 15 to 20 years or less. To get the payments lower the agreement may state that you pay 50,000 dollars as a balloon payment at the end. In other words, if the mortgage is 200,000 dollars for 15 years you are paying 150,000 dollars in the first 15 and the last payment must be 50,000 dollars. You can of course pay more during the month to lower the balloon payment or pay off the loan earlier.
It is up to what you can afford. As you can see there are some differences and similarities to the loan options you have. Make sure the mortgage you purchase is affordable to your situation.
