Choosing The Right Mortgage To Fit Your Income

Choosing The Right Mortgage To Fit Your Income



Choosing the​ Right Mortgage to​ Fit Your Income
Most of​ us can’t afford to​ buy our new home outright,​ so we save up a​ down payment and then work out an​ arrangement to​ finance the​ balance .​
This arrangement is​ called a​ mortgage .​
You agree to​ pay a​ set amount and use the​ house as​ collateral .​
If you​ miss a​ certain number of​ payments,​ the​ bank has the​ right to​ declare you​ in​ default of​ your mortgage and foreclose on​ your property .​
You then lose everything you​ have invested plus the​ house .​
To avoid such problems,​ it​ is​ important to​ get the​ mortgage that fits your income.
There are many different kinds of​ mortgages .​
These include fixed- and adjustable-rate mortgages .​
There are sub prime rates for people with credit problems .​
There are also jumbo,​ balloon and construction mortgages .​
The most common mortgages are fixed rate mortgages where the​ borrower repays a​ fixed rate of​ interest over a​ period of​ 20 or​ 30 years .​
The interest rate is​ in​ effect for the​ life of​ your mortgage .​
The monthly payment (including interest) is​ determined when the​ loan is​ made .​
It does not change over time.
The adjustable rate mortgage (ARM) differs from the​ fixed rate because the​ interest rates and monthly payments go up and down depending on​ market interest rates .​
Hybrid ARMs usually include a​ one or​ five year fixed interest rate .​
After that the​ interest becomes that of​ the​ market place and the​ borrower’s monthly payment goes up and down for the​ duration of​ the​ loan .​
There are also ARMs where the​ borrower pays only the​ interest on​ the​ loan for ten years .​
After that the​ borrower must pay the​ current rate of​ interest .​
Some ARMs can be converted to​ fixed rate mortgages for a​ fee .​
The good news is​ that there are caps on​ the​ interest and payments due .​
Periodic caps limit prevent interest rates from rising more than a​ certain number of​ percentage points in​ any year .​
Lifetime caps limit how much the​ interest rate can rise over the​ life of​ the​ loan .​
Payment caps limit the​ amount the​ monthly payment can rise over the​ life of​ the​ loan in​ dollars,​ rather than how much the​ rate can change in​ percentage points.
Sub prime mortgages are for people with credit problems and having a​ credit score of​ less than 620 .​
They have higher interest rates than do regular loans .​
Just how much higher depends on​ the​ borrower’s credit score,​ size of​ down payment,​ and what types of​ delinquencies the​ borrower has in​ the​ recent past .​
Sub prime loans can have a​ prepayment penalty if​ the​ loan is​ paid off early .​
They can also include a​ balloon payment .​
In this type of​ loan,​ the​ borrower is​ required to​ pay off the​ balance of​ the​ loan in​ full after a​ specified period has passed .​
If the​ borrower can't pay the​ entire amount,​ he/she has to​ refinance the​ loan or​ sell the​ house.
There are other types of​ loans .​
The jumbo loan is​ higher than most loans and allows you​ to​ buy a​ more expensive house .​
The downside is​ that you​ pay a​ higher interest rate than normal .​
Two-step mortgages have a​ fixed rate and payment for an​ initial period,​ one adjustment of​ interest rates and then a​ fixed rate and payment for the​ remainder of​ the​ loan.




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