Knowing More About The Two Most Commonly Used Mortgage

Seeking financial help from traditional banks

, credit unions or mortgage companies is one of the very first options of potential homebuyers when they know they do not have enough cash for buying a property, let us say, a Tacoma Real Estate property. Financial institutions like these can provide you various types of loan programs that you can obtain from them after they are able to consider all your financial information. Before going to various Tacoma Homes for Sale, it can help if you already know what kind of mortgage you will or you are qualified to get. There are two general types of home loan available today, the fixed-rate mortgages and the adjustable-rate loans. You should be able to understand the differences of these two types of loan so you can make a smarter and more informed decision when you start the home-loan application process.

What is fixed-rate mortgage?

Fixed-rate only means that the interest rate that will be followed throughout the life of the loan will always remain constant. This means that you do not have to worry every pay time if the interest rate will increase or not. The monthly payment remains the same throughout the loan making it easier for you to allocate budget for it. Many government programs offering home loans prefer this type of loan, as well, mainly because it is simple and pretty much very straightforward.

With fixed-rate type of loan, the thirty-year amortization programs seem to be the most popular for borrowers. In this kind, the loan is payable for thirty years, without changes in monthly payments for the homebuyers. Because thirty years is a very long period, you should expect that the interest rate would also be higher. However, you have to take note that the monthly payments are much lower than loan types with lesser number of years. For instance, the 15-year fixed rate, the second most popular type of fixed-rate loan is basically just the same with the thirty-year loan, however it requires higher monthly payment and lower interest rates because you only have fifteen years to pay for it. There are also ten-year, twenty-year and fifty-year fixed rate types of loan offered by some mortgage companies.

What is adjustable-rate mortgage?

You may find this kind of home loan much complex and intricate than the fixed-rate mortgages. You need to have understanding of concepts such as cap, margins and indices for you to be able to understand fully this type of loan. Most of these kinds of loans are also hybrid programs. This means that the loan is a combination of the fixed-rate period during the first few years and then succeeded by adjustable-rate mortgages. Again, the thirty-year period of amortization is also the most famous one used in this type of loan. Your loan officer might suggest you get a 5/25 ARM that means the first 5 years will use a fixed-rate interest and the remaining 25 years will have adjustable interest rate. You can also opt for the 3/27 ARM with terms just the same as the 5/25, only it has a 3-year fixed interest rate period and a 27-year adjustable-rate period. Most homebuyers applied for adjustable-rate mortgages because of lower down payment. This is also perfect if you consider buying a home for a short-term investment only.

by: Sophia Were

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