Mortgage Loans Explained In Plain English

With the many different kinds of mortgage loans out there, choosing the right one for your needs can be a difficult task. The following points will help you understand the pros and cons of the different types of mortgage loans available to you.

What are the main types of mortgage loans?

There are two main types of mortgage loans-fixed-rate and adjustable-rate mortgages.

A fixed-rate mortgage comes with an interest rate that will never change over the 15, 20 or 30 years that the loan will last.

In contrast, the interest rate of an adjustable-rate mortgage will change. The rates are usually attached to an interest rate index-the LIBOR rate (London Inter-Bank Offer Rate) is a popular one-and your payments will go up and down if the indexes change.

If I get a fixed-rate mortgage loan, what should I keep in mind?

Fixed-rate mortgages offer stability above all. You know exactly what interest rate you will be paying. If you think that your income is not going to change much over the coming years, or if you are planning to stay in your house for a long time, then a fixed mortgage loan is a good option for you.

On the flipside, stability comes at a price. You will initially pay higher interest rates than in an adjustable-rate mortgage loan and you will need to put a higher down payment (somewhere between 10 to 20 percent of the loan) into the mortgage. If you don't have enough money to afford a high down payment, you will need to get Private Mortgage Insurance (PMI), which will increase your monthly payments.

What should I consider when getting an adjustable-rate mortgage loan?

An adjustable-rate mortgage loan initially gives you a lower interest rate than a fixed one. Many loans give you three to five years during which you pay a low fixed interest rate, and then the rate begins to fluctuate with the market. Some loans will put caps on how much your rate can change from year to year to protect you from market fluctuations. The risk with this type of loan is that interest rates might go up, but then again, interests can also go down and your payments will go down with them.

If you are not planning to be at your house for the long haul or you are planning to sell, then this loan is a better option for you.

How can I compare different mortgage loans?

Mortgage brokers are required by law to provide you with an Annual Percentage Rate (APR). This figure adds up all your expenses (property taxes, insurance, loan fees, interest payments, etc.) and expresses them as a percentage of your loan. For example, a loan might have a one percent interest rate, but when you add all the extra expenses, you will actually pay 1.5 percent. The APR is the best way to compare mortgage loans and decide which one offers you the best deal.

How will mortgage brokers decide whether I can get a mortgage loan?

Mortgage brokers are looking for indicators that tell them that you can pay the loan back. Among the things they will look at are your credit history and whether you have had stable employment for the last two years. It is usually a good idea to ask for a copy of your credit history before you go to your mortgage broker.

Mortgage brokers use a formula called 28/36 to decide if you can afford your mortgage loan payments. This means that your mortgage payments cannot be higher than 28 percent of your income and your total credit payments (for credit cards or other loans, including your mortgage) cannot be higher than 36 percent.

Joel Meadowridge is the editor for the Mortgage Broker National Directory where you will find more information about mortgage loans and a directory of mortgage brokers located in major cities across the United States.

---

HELOCs and Second Mortgages: Which One Should I Choose?

Whether you need some extra cash to pay off some... Read More

Bad Credit Mortgage Refinance - Should I, Shouldnt I?

It is a common financial scenario across households in the... Read More

Foreclosure Scams To Be Aware Of

Homeowners facing foreclosure should be aware of unscrupulous lenders and... Read More

Debt Counseling ? Healing Touch for the Ailing Finances

The financial stories remain similar over the months and the... Read More

Bad Credit Mortgage Lender - What to Look For

If you have less than perfect credit and are looking... Read More

Fixed Versus Adjustable Rate Mortgages

Which One Should You Choose?Choosing between a fixed rate loan... Read More

Why You Should Not Get Hung Up on the Interest Rates!!

This is what a mortgage can do for you!AND Why... Read More

Refinancing Your Home - Is the Time Right?

Refinancing your home is a major decision not to be... Read More

Mortgage and Credit Card Companies Under the Spotlight on Consumer Charging

For the first time since May 1996 reports have indicated... Read More

How to Find the Best Mortgage

The purchase of a new home is one of the... Read More

Online Mortgage in UK - Introducing the Best Mortgage Plan Across UK

Add the term 'online' and it will open for you... Read More

Home Loan Confusion Continues

Unfortunately, most Americans still do not understand how home loans... Read More

Refinance After Bankruptcy

Refinancing your mortgage after bankruptcy is actually the same as... Read More

Home Equity Loans ? Research Your Lender Carefully

Real estate prices are rising across the country, and Americans... Read More

Do You REALLY Need a Home Equity Loan?

Your equity is the amount your home is worth, on... Read More

2nd Mortgage Loan After Bankruptcy - Get Approved Online

A 2nd mortgage loan after a bankruptcy is possible in... Read More

5 Things In Selecting The Best Mortgage - You Should Know

Your goal is not only to find the best rates... Read More

Home Mortgage Loan Pre-Approval Online ? Keys When Applying For A Mortgage Online

Applying online for a mortgage is very fast and easy.... Read More

Is an ARM Right For You?

Let's start by taking a look at 7 key elements... Read More

Guide to Mortgages

A mortgage is a loan that is guaranteed by a... Read More

Finding the Best Home Improvement Loans

When the time comes to do work around the house,... Read More

Buying a Home With Bad Credit - Tips on Finding the Right Broker or Lender

You can buy a home with a bad credit record;... Read More

How I Became a Hard Money Lender

Unlike other investors, my venture into real estate was a... Read More

What to Really Expect for Closing Costs

Closing on a property is a very challenging time for... Read More

Non-conforming Home Loans vs Conforming Loans

The simple definition of a "non-conforming home loan" is: You... Read More

Imagine Cutting Over $8,000 Off Your Mortgage This Year

I once helped a customer cut over $700 off his... Read More

Look For a Great Mortgage Online

People who are looking for a mortgage today have many... Read More

A Simple Way to Save Thousands on Your Mortgage Charges

How many times do you check you restaurant bill? If... Read More

Why Choose a Home Owner Loan?

Most people choose a home owner loan as it can... Read More

Mortgage Broker or Assassin? A Banker Who Offers You This Loan May be Trying to Kill You!

What if a banker or mortgage broker told you he's... Read More

Home Loans ? Would You Buy a Home Without an Inspection?

The housing market has exploded, with home prices rising beyond... Read More

Home Mortgage Loans For People With Bad Credit - 3 Ways To Improve Your Chances For Getting Approved

Finding home mortgage loans are a reality for people with... Read More

Recent Bankruptcy? Its Not Impossible to Obtain a Home Loan

Because the new bankruptcy laws go into effect on October... Read More