An Explanation of the Two Types of Mortgages


The First Type of Loan is The Fixed-Rate Mortgage

This is the plain-vanilla loan that most people think of when considering a mortgage. You will owe a certain percentage of the loan as an interest to the lender. This amount never changes, and your monthly payment will remain the same over the life of your loan. Fixed-Rate Mortgage is usually for 15 or 30 years.

The Second Type of Loan is The ARM

This is an adjustable-rate mortgage.  The interest rate changes to reflect changes in the credit market out in the great, wide world.  The first-year rate (otherwise known as the teaser rate) is generally a couple of percentage points below the market rate. There are also upward limits, above which the interest rate isn't allowed to go -- this is called the cap. If your teaser rate is 4%, and you have a five-point cap, then the highest that your interest rate can go is 9%.  What's more, the amount that the interest rate can rise each year is limited, usually to one or two percentage points per year. The frequency at which the rate adjusts might vary; make sure you know these features.  If you're considering an ARM, think about the worst-case scenario. What if interest rates go up, and your ARM adjusts to its maximum? What will that maximum be, and when will it kick in? Will you be able to afford the payments?

I have excellent mortgage brokers if you are thinking of getting qualified or refinancing your current residence.

Warmest Regards,

Kevin Aizenshtat


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