| Mortgages: Mortgage
Types |
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30
Years Fix Rate Mortgages
The monthly
payment is the same for the entire 30 years. In the first 10 years the
majority of the payment is for the interest.
15
Years Fix Rate Mortgages
The monthly
payment is the same for the entire 15 years. The interest is typically
lower than the 30/year fix rate, due to the duration of the loan.
Adjustable
Rate Mortgages
The interest
and the payment is fix for the initial term ( 3,5, or 7 years). After
the initial term the payment will change related to the than –current
interest rate. The monthly payment may go up or down at that time.
Interest
Only Adjustable Rate Mortgages
Relatively
new plans that allow the borrower(s) to pay interest only for 5-15 years.
The payment may go up or down based on the interest rate. The frequency
of the payment change may be anywhere from 1 month to 1 year. After the
initial Interest only term, additional payment will include principal
portion as well.
Only borrowers with high credit score may be qualifies for the I/O loans.
The
advantages for the Interest only plans:
- The monthly
payment is significantly lower compared to the 30 years fix payments.
- The initial
interest rate is significantly lower, it could be as low as 1.25%.
- This lower
payment frees cash for investment or other expenses.
- The lower
payments give the opportunity to borrowers to purchase homes otherwise
they wouldn’t be able to afford it.
- The lower
payments allow borrowers to purchase larger homes.
- The cost
of closing cost may be lower compared to the other plans.
Disadvantages of the Interest only plans:
- The I/O
loans are recommended to borrowers that plan to keep it for no more
than 15 years.
- The payments
may go up and down based on the interest rate.
- The balance
of the loan remains the same over time. After the initial Interest Only
term the borrowers have to pay principal, or refinance again.
Multi
optional plans
- The multi
optional plans combine the best of everything.
- Option
for fix monthly payment for 1 to 5 years.
- Low interest
rate that changes every month, but the payment is still fix.
- Each months
there are 4 payments to choose from:
- The fix monthly payment (principal and interest).
- The Interest only payment option
- Payment as it is a 30/years fix loan
- payment as it is 15/years fix loan
- The borrowers
choose every month which payment is the best fit for this month.
- The multi
optional plans are flexible and may be paid-off typically between 3
to 40 years.
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