Mortgage Loan - Adjustable Or Fixed Rate Mortgage Loans
The big difference between an adjustable and fixed rate mortgage loan is
, that the market interest rates move the price of the adjustable rate mortgage loan, but the fixed rate loan has the same monthly payment through the whole running time.
1. The Fully Amortizing ARM.
This is the most popular adjustable mortgage loan. The plan is, that the monthly payments will pay off the whole debt by the end of the running time, which is typically 30 years. After each fixed interest rate period, the annual payment will be adjusted. This loan has also a maximum interest rate, which it will not exceed.
2. The Interest Only ARM.
With this mortgage loan you will only pay the interests. Every year, the interest level will be checked and if changed, the monthly payments will follow this market price. The changes will be done annually. This loan type has an interest ceiling, i.e. the maximum interest level, which it cannot exceed. At the end of the running time, the borrower will make a balloon payment and pay away the loan capital.
3. The Fixed Rate Mortgages.
The most used ones are 15 and 30 year mortgage loans. These loans offer security, because the interest rate is the same every month and there will be no surprises. The bi weekly and convertible mortgage loans are the specialties among the fixed rate loans.
A borrower will pay the bi weekly loan every other week to reduce the total paid interest amount during the running time. A convertible loan is a hybrid loan, which is fixed but includes a component of the variable interest rate, which can bring the savings, if the market interest rates will decrease under a level determined in the contract.
4. How To Predict The Future Interest Rates For ARM?
A tough job. However, when you calculate how much you can borrow, a wise borrower will add 3 percentage points on the top of the current interest rate level to make it sure, that he has an ability to pay. Concerning the forecasting, the economy moves usually quite slowly upwards and downwards, so it can be possible to forecast the interest rate levels for some upcoming years.
On the top of the loan types above, there are some special loans, which include social aspects. However, it is useful to read the basics of all the different loans and to try to build an opinion about which loan style is good for you. This is the process, where it is wise to go on slowly and to have a patience to think and talk with other people and experts.
by: Juhani Tontti
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