Choosing_The_Right_Mortgage_To_Fit_Your_Income by MarijanStefanovic

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									Title: Choosing The Right Mortgage To Fit Your Income

Word Count: 549

Summary: Most of us can’t afford to buy our new home outright, so we save up a down
payment and then work out an arrangement to finance the balance. This arrangement is
called a mortgage. You agree to pay a set amount and use the house as collateral. If you
miss a certain number of payments, the bank has the right to declare you in default of
your mortgage and foreclose on your property. You then lose everything you have
invested plus the house. To avoid such problems, it is important...


Keywords: loan,mortgage


Article Body: Most of us can’t afford to buy our new home outright, so we save up a
down payment and then work out an arrangement to finance the balance. This
arrangement is called a mortgage. You agree to pay a set amount and use the house as
collateral. If you miss a certain number of payments, the bank has the right to declare you
in default of your mortgage and foreclose on your property. You then lose everything you
have invested plus the house. To avoid such problems, it is important to get the mortgage
that fits your income.

There are many different kinds of mortgages. These include fixed- and adjustable-rate
mortgages. There are sub prime rates for people with credit problems. There are also
jumbo, balloon and construction mortgages. The most common mortgages are fixed rate
mortgages where the borrower repays a fixed rate of interest over a period of 20 or 30
years. The interest rate is in effect for the life of your mortgage. The monthly payment
(including interest) is determined when the loan is made. It does not change over time.

The adjustable rate mortgage (ARM) differs from the fixed rate because the interest rates
and monthly payments go up and down depending on market interest rates. Hybrid
ARMs usually include a one or five year fixed interest rate. After that the interest
becomes that of the market place and the borrower’s monthly payment goes up and down
for the duration of the loan. There are also ARMs where the borrower pays only the
interest on the loan for ten years. After that the borrower must pay the current rate of
interest. Some ARMs can be converted to fixed rate mortgages for a fee. The good news
is that there are caps on the interest and payments due. Periodic caps limit prevent interest
rates from rising more than a certain number of percentage points in any year. Lifetime
caps limit how much the interest rate can rise over the life of the loan. Payment caps limit
the amount the monthly payment can rise over the life of the loan in dollars, rather than
how much the rate can change in percentage points.

Sub prime mortgages are for people with credit problems and having a credit score of less
than 620. They have higher interest rates than do regular loans. Just how much higher
depends on the borrower’s credit score, size of down payment, and what types of
delinquencies the borrower has in the recent past. Sub prime loans can have a prepayment
penalty if the loan is paid off early. They can also include a balloon payment. In this type
of loan, the borrower is required to pay off the balance of the loan in full after a specified
period has passed. If the borrower can't pay the entire amount, he/she has to refinance the
loan or sell the house.

There are other types of loans. The jumbo loan is higher than most loans and allows you
to buy a more expensive house. The downside is that you pay a higher interest rate than
normal. Two-step mortgages have a fixed rate and payment for an initial period, one
adjustment of interest rates and then a fixed rate and payment for the remainder of the
loan.

								
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