home base business

Fixed Vs. Adjustable Rate Home Mortgage Loan

By: Alan Lim

Getting a home mortgage loan but confused which particular type to get? Read about fixed and adjustable rate mortgages through this article.

If you are getting yourself a home mortgage loan, you will most likely encounter a phase where you are torn between choosing a fixed rate or an adjustable type of mortgage. No one can really say that one loan is better than the other. The choice you make is dependent on a number of factors which may include your interest rate outlook, your budget, the number of years you intend to stay in your home, and how much risk you can tolerate. Let us look through these two types of mortgage loans so you can determine which among the two is best for you.

A fixed rate home mortgage loan (FRM), as its name itself suggest, involves loans whose interest rates remain the same all throughout the lifetime of the mortgage. They generally cost more to compensate for the lesser risk and the greater comfort involved. If the current interest rates are low, an FRM will prove to be a good choice as you will be assured of locking in at a low interest all throughout your loan term.

On the other hand, an adjustable rate home mortgage loan (ARM) is that whose rate fluctuates as the interest rates in the market rise and fall. ARMs are given initially cheaper than FRMs since they involve greater risk. They are a great option if the current interest rates are high and you foresee them to lower in the coming years. If you know that you will stay in your home for a relatively short period, you can get a good deal with an ARM.

The downside of getting an adjustable home mortgage loan is that you can run a real risk of having to pay more if interest rates rise sharply. This means that you will need to pay more in monthly payments. The rate of your ARM loan varies depending on your loan agreement terms. Some rates change as frequently as three months, while others change once a year or every three years. ARMs generally come with a rate cap, which limits the amount by which the lender can raise their rate. The cap is usually set to 2% meaning that the rate increase should only be a maximum of two percent for a given adjustment period.

Because of its stability and lesser risk, FRMs are understandably more popular. Even if they come more expensive, getting a fixed rate home mortgage loan will enable you to easily manage your monthly budget so you can have better control of your finances. It is also less risky since you always have the option to refinance in case interest rates drop uncontrollably. Conversely, although ARMs can be risky and confusing, there are good deals provided by many lenders which are actually better than FRMs.

The type of home mortgage loan you should choose depends on various factors. It all boils down to how open you are with taking risks. To help you figure out which one is best, you can try to imagine your worst and best case scenarios. You can calculate and compare your options and determine which one can give you the best deal possible.

Article Source:
http://www.articlecity.com/articles/business_and_finance/article_9001.shtml

Educated Consumers Can Save Money on Mortgages

By: Chris Robertson

Not only is owning a home an integral part of the American dream, but our home is likely the biggest purchase we will ever make and the biggest asset - or liability - we will ever have. Until about a year ago, of course, no one would have imagined that a home could be a liability. That’s when housing prices started to drop and relatively new homeowners realized that it was only a matter of time before their adjustable rate mortgages would skyrocket.

Experts agree that house values haven’t yet reached their nadir and that many homeowners are poised on the precipice. While some people might find it easier to stick their heads in the proverbial sand, smart homeowners and homebuyers see the current market as an opportunity to either take a second look at their existing mortgages or to shop around for new mortgages. Either way, it’s important to learn all that you can about different ways to finance a home before you take the plunge. Here are a few scenarios that illustrate some of the choices available today.

Nine years ago, Sam and Jenny Thompson bought a home that was ten years old. They were savvy enough to buy their house just before prices went through the roof. They have well over $100,000 of equity in their home, but their home is showing signs of wear. It’s time for a new roof, a new heating and air conditioning system, and they know that they need to have some dry rot repaired and have the house painted. They don’t have much in savings, though, and want to borrow money so that they can get the repairs done.

Sam and Jenny have a few options to pay for home improvement. They can refinance their home and get cash out for the repairs, they can get a home equity line of credit, or they can get a second mortgage. Which option is best depends largely on that status of their current mortgage. If they have a low interest, fixed rate loan, it probably doesn’t make sense to refinance. If they’re planning on staggering their home improvement over the next two years, it probably doesn’t make sense to get a lump-sum second mortgage. Instead, a home equity line of credit might work best. On the other hand, if they have an adjustable rate mortgage, it might be financially prudent to refinance to a fixed rate loan and cash out part of their equity to make their home repairs.

Cynthia and Bill Williams have owned their home for five years, but are concerned that Bill might be laid off in the next six months. They have quite a bit of money in savings, but have racked up considerable credit card debt. Because they’re paying a high interest rate on their credit card debt, they may want to use a home equity line of credit for debt consolidation purposes, and to have a cushion in case Bill does lose his job.

When Rebecca Richards bought her home two years ago, she thought housing prices would continue to soar and interest rates would go down. She bought her house with an adjustable loan and is terrified that, when the loan adjusts later this year, she won’t be able to make her payments. In this scenario, Rebecca needs to meet with her lender now, rather than wait for the other shoe to drop. If possible, she should convert her adjustable rate home loan to a fixed rate loan.

The bottom line is that, whatever your circumstances, you need to learn all that you can about the options available to you. Thankfully, there are resources on the Internet that not only have a library of informative articles on mortgages, but that also provide the calculators and tools you need to find the answers to your questions. The best sites even offer a variety of loan programs and will prepare a personalized quote for the types of mortgages that you might be interested in.

Article Source:
http://www.articlecity.com/articles/business_and_finance/article_9022.shtml