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Fixed Rate Mortgages: Payments remain the same for the the life of the loan

Types

  • 15‐year
  • 30‐year

Advantages

  • Predictable
  • Housing cost remains unaffected by interest rate changes and inflation.

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits

Types

  • Balloon Mortgage‐ Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is clue or refinanced (though not automatically)
  • Two‐Step Mortgage‐ Interest rate adjusts only once and remains the same for the life of the loan
    ARMS linked to a specific index or margin

Advantages

  • Generally offer lower initial interest rates
  • Monthly payments can be lower
  • May allow borrower to qualify for a larger loan amount
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