Fixed Rate and Adjustable Rate (ARM)
Fixed rate mortgages and adjustable rate mortgages are the two most common mortgage loan types available. There are pros and cons involved with each of these types of loans and your credit score plays an important role in determining the terms you will qualify for with each of these loans.
Understanding the Fixed Rate Mortgage
The majority of homebuyers choose to apply for a fixed rate mortgage, though that doesn't necessarily mean it is the best option for you. With this type of mortgage, your interest rate becomes locked in when you complete your application and this rate remains in place throughout the lifetime of your loan.
You can generally choose to repay your mortgage loan over a period of 15, 20, or 30 years, though some lenders will allow you to choose a different span of time for repayment. With each payment you make during this given period of time, a portion of the amount goes toward paying the interest while another portion pays your principal.
For the first several years of this type of loan, the majority of your payment goes toward paying the interest. Over time, however, a larger amount of your payment will be applied toward the principal.
People who choose this type of mortgage loan usually do so because the payment amount remains constant. This makes it easier to budget house payments and keeps the borrower protected if interest rates increase in the future.
There are many factors to consider when deciding between a fixed rate or an adjustable rate loan. Determining which is the best for you can be confusing and even overwhelming. Don't worry - FiveStarHomeMortgages can help! Contact us today so our professionals can help you get the loan that is right for you.