This is part three in a five part series on what you need to know about mortgages before you buy a home. The housing market is an interesting beast, because it comes and goes, rises and falls, allows some people to flourish and brings others to ruins. If you want to understand how the housing market works, you should begin with an introduction to mortgages.
Mortgage Types
There are a number of different mortgage types that you are allowed to choose from. The type of mortgage that you choose is generally going to depend on what length of time you plan to spend living in the home and whatever other financial obligations that you may have as well. If you believe that you are going to spend the rest of your days in your new home, then finding a mortgage with a fixed rate is a good idea because what you will have is the lowest possible interest rate without a possibility of the interest rate changing over time.
There are other considerations that you need to make, however. What if your kids are going to enter into college within 10 years? You may want to consider an ARM or Adjustable Rate Mortgage if this is the case, or even a mortgage that requires a balloon payment, this way you can keep your mortgage payments low at least for the first few years of repayment so that you can save up for college.
Once your kids are no longer in college, then you can refinance your mortgage loan for a better interest rate. If you do not believe that you are going to be in your home for that long of a period of time, then you may want to look into other available options as well.
Fixed Rate Mortgages
This is a type of mortgage that offers a type of interest rate that isn't going to go up at all during the entire length of the mortgage loan. If you lock your rate in at 7 percent, for example, then in 20 years you are still going to be paying for 7 percent interest, meaning that your monthly payment is also always going to be the same as well. The only thing that is going to change is the insurance payments and the property taxes, as these are things that can and will likely go up over time. The length of the mortgage loan, known as the term in mortgage terminology, can be 15 years, 20 years or 30 years. All of these terms are going to have an effect on the benefits that you are going to get out of the mortgage, for example:
30 year fixed rate mortgage: This term is going to give you a maximum advantage in terms of taxes, since you will have the greatest possible interest deduction at the end of the term.
Photo Credits: the.approximate.photographer
Originally posted 2009-08-21 03:16:01. Republished by Blog Post Promoter
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