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 30 Year Fixed Rate Mortgage Loan
A Fixed Rate Mortgage is one in which the rate remains the same
across the life of the loan. The advantage is that monthly payments
will remain the same. However, if you lock into a higher interest
rate, the rate will not change, even if interest rates go down in
the future. The lowest monthly payments come from 30-year fixed-rate
mortgages. However, these mortgages also take longest to build up
equity in your home. Experts recommend a 30-year mortgage if you
are planning to stay in your home for several years and want a stable
rate.
15 Year Fixed Rate Mortgage Loan
These loans spread the principal and interest across a 15-year
period, after which you have paid off your loan. Because of the
shorter term of the loan, you can build up equity in your home at
a much faster pace. However, monthly payments are higher than for
a 30-year fixed-rate mortgage. Experts recommend a 15-year fixed-rate
mortgage if you are planning to sell your home in a few years and
want a stable rate.
Adjustable Rate Mortgage Loan
Adjustable-Rate Mortgages, or ARMs as they are commonly called,
are ones in which the interest rate changes periodically according
to a fixed index. A 1-year ARM adjusts the interest rate annually.
Monthly payments will increase or decrease along with the index
rate, which is specified by the mortgage. Common indices include
1-year Treasury notes, Federal funds rate and the national cost
of funds index. A margin -- usually one or two percentage points
-- is added to the index rate. Adjustable-rate mortgages include
two caps on the amount the rate can increase or decrease. One cap
limits the interest rate adjustment in any one adjustment period
(e.g. one year in a one-year ARM), and the second cap limits the
interest rate adjustment across the lifetime of the loan. The advantage
of an adjustable-rate mortgage is that monthly payments can decrease
when the index goes down. However, monthly payments will increase
when the index goes up.
Second Mortgage Loan
A subordinated lien, created by a mortgage loan, over the amount
of a first mortgage. Second mortgages are commonly used to reduce
the amount of a cash down payment on a purchase or to raise cash
for any purpose.
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