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Types of Home Mortgages
Types of Loans - Fixed-rate Loans
Because there are many types of home loan products available, this article offers Maplewood homebuyers two of the
most popular types of loans in use today. Fixed-rate mortgages offer homebuyers a "fixed payment" for the life of
the loan*. In addition, the interest rate remains the same during the life of the loan as well. Popular fixed-rate
mortgages include 15 year and 30 year loans.
What are Escrow Accounts & PITI
Because many mortgage companies utilize escrow accounts to pay for your annual property tax and homeowner insurance,
it's possible your monthly payment will be based on PITI or Principal, Interest, Taxes and Insurance. A portion of
your monthly payment is allocated to a special escrow account to pay for your annual homeowner's insurance premium
and property tax bill when it becomes due and payable. Depending on your mortgage company, this feature is sometimes
optional, meaning you pay for your taxes and insurance "out of pocket".
Adjustable-rate Mortgage (ARM)
Adjustable-rate mortgages are commonly called ARM mortgages. With an ARM, the interest rate changes periodically
depending on whether the ARM is a 3-year or 5-year. In addition ARMs adjustments are tied to an index. Please understand
this important fact - while your monthly payments that you make with a fixed-rate mortgage seldom change payments on an
ARM loan will likely change. When reviewing this type of loan, we recommend you qualify based on the worst case scenario
of the interest rate reaching its maximum limit.
Adjustable-rate Mortgage Index - What is it?
An index is an economic indicator that mortgage companies use to set the interest rate for an ARM. Generally speaking,
the interest rate that you pay is a combination of thefinancial index rate and a pre-determined margin. The three commonly
used indices are:
* A One-Year Treasury Bill
* The Cost of Funds of the 11th District Federal Home Loan Bank (COFI)
* The London InterBank Offering Rate (LIBOR)
So Which Type of Mortgage Loan is Best?
There really is no safe answer to this question nor is there a simple formula to determine which type of mortgage is
best for your financial situation. Your choice of a mortgage is dependent on a number of factors, including:
1. Your current financial picture
2. How long you intend to remain in your home
ARMing Essex County Home Buyers
Because experience is a tremendous asset, we will refer you to a trusted lending consultant to help you will make the
absolute smartest mortgage decision possible. Contact us today for your initial home buying consultation. When
considering any type of home loan, remember this important fact, there are advantages and disadvantages to each type
of mortgage. Having a trusted real estate partner by your side to fully explain each type of mortgage really is the
best way to select a mortgage loan product.
* Fixed mortgage payments-Your monthly payment may change slightly to adjust for higher taxes or homeowners
insurance premiums.