As a homebuyer, it’s in your best interest to understand the way mortgage loans work. There are three basic types of mortgage loans – and the type you choose will depend on your credit, the amount you’re willing to pay and the purpose of your loan.
The two typical types of mortgage loans for homebuyers are fixed-rate and adjustable-rate.
Fixed-Rate Mortgage Loans in Florida
Fixed-rate mortgage loans are very common. The most popular term for a fixed-rate mortgage is 30 years, but they are also available in 10-year and 15-year terms. Generally, the longer your loan term is, the lower your monthly payment will be.
If you have a fixed-rate mortgage loan, your interest rate will stay the same for the entire duration of the loan. For example, if you secured an interest rate of 4 percent on a 30-year loan, that will not change; your interest rate will always be 4 percent.
During the first few years of a fixed-rate mortgage laon, only a small part of the payment you make azctually goes toward the principal, or the cost of the house. You’ll mainly be paying interest charges for quite some time.
Adjustable-Rate Mortgage Loans in Florida
With an adjustable-rate mortgage loan, your interest rate can change from year to year. These types of loans fluctuate with market conditions.
Some lenders use hybrid ARMs, which have the features of adjustable-rate and fixed-rate mortgages. For example, you may have a fixed interest rate for a certain period – say 5, 7 or 10 years – and after that point, your interest rate will begin to fluctuate.
Generally, the lender will have a cap on the initial interest rate reset that’s higher than all of the rate adjustments so you can be assured that it won’t skyrocket during the term of your loan.
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