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Mortgages - Some Tips for the Borrower
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Mortgages can sometimes be intimidating, especially for the first-time borrower. They have their own language and procedures that can seem complicated at times. Here are a few definitions and tips to familiarize yourself with mortgages and their ins and outs.
Fixed Rate Mortgages
Fixed rate mortgages carry the same interest rate for the entire length of the loan. If interest rates are low when you borrow, you may want to discuss fixed rate mortgages with your bank or lender.
Short Term Mortgages
If you decide you can afford a shorter term for your load (for example, 15 years instead of 30 years), your interest rate may be lower. Though you will pay less over the whole term of the loan, be prepared for larger monthly payments. Speak with your bank or lender about what you can afford.
Adjustable Rate Mortgages (ARMs)
Adjustable Rate Mortgages, or ARMs, often carry lower interest rates than fixed rate mortgages, but if interest rates increase over the term of your loan, you will end up paying more. If you plan to sell the residence for which you are applying for the mortgage in a few years, an ARM may be the best choice for you. U.S. Treasury Bill yields are often used to determine interest rates for Adjustable Rate Mortgages. Talk to your bank or lender about your options to see if an ARM is right for you.
Rate Caps
Usually, Adjustable Rate Mortgages have ceilings on how high interest rates can be adjusted during each adjustment period (adjustment periods can be every six months or every year or longer) and over the life of the loan. These ceilings, or caps, can protect you from wild fluctuations.
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