Thursday, August 21, 2008

Home Loan Rates - ARM or Fixed?

This article defines the characteristics of and differences between the two major types of a home loan rates. It also discusses some of the advantages and disadvantages of each.

There are many ways to structure home loan rates, but the two most common type of loan structures are the Fixed Rate Mortgage and the Adjustable Rate Mortgage. The type of mortgage rate that you choose will depend upon your own situation. The interest rate is the amount the loan costs you over time and varies according to the initial rate set or according to the changes in the index rate applied to your loan. The fixed rate loan will carry the same interest rate throughout the life of the loan, while the ARM changes according to a predetermined index rate.


There are two major types of mortgage loans. Home loan rate that is set at the beginning of the loan and doesn't change during the course of the loan is known as a fixed rate loan, for obvious reasons. The loan rate is often based on what the economy is doing at the time. Lenders want to protect themselves if there is an indication that loan rates may change drastically during the course of the loan.

The adjustable rate mortgage is flexible and helps to protect the lender in situations where the interest rates are rising over a period of time. If the increased in rates reach a certain level, the lender is allowed to adjust the interest rate and thus the payment amount upward for the balance of the loan term

ARM Advantages and Disadvantages

The ARM is relatively new on the home loan rates picture. The ARM or adjustable rate mortgage was created at a time when fixed mortgage rates were high. The ARM allowed initial interest rates to be set lower than the prevailing fixed rates and to be adjusted upward according to a predetermined formula in the future. For example, the ARM might be set with the rate two points lower than the fixed mortgage rates at the time with the provision that after two years, the rate would be adjusted in accordance with a predetermined index in the future. More borrowers could qualify to obtain the loan, while the lenders didn't have increased risk so long as the interest rates or index were increasing.

Fixed Rate Advantages and Disadvantages

Fixed rates are often set slightly higher than ARMs in order to lock in a loan rate when rates are rising so that the lender doesn't lose money on the opportunity to lend money at higher interest rates. At the same time, with a fixed rate, if the rates are falling, the lender has the older fixed rate loans that are bringing more interest money than the current loan. Fixed rate type home loan rates packages are believed to be more favorable to the borrower than the lender.

Another advantage of the fixed rate loan is structure. You can not be priced out of your home by increasingly painful mortgage rate adjustments with corresponding payment amount adjustments. This makes it easier to budget and to plan your expenditures over a longer period of time.

Visit the web site located for the best information about common Home Loan Rates or Home Loan types such as fixed rate and adjustable rate mortgages.

Friday, August 8, 2008

New Home Mortgage - Choosing the Right Mortgage

Since a new home mortgage is probably the largest financial obligation most people will make during their lifetime, it is important to select the right mortgage. You want one that provides payments that will fit within your budget and helps you achieve the goal of home ownership.

What kinds of mortgages are available?

The major types of loans that borrowers find available include fixed rate mortgages, adjustable rate mortgages, interest only mortgage, negative amortization mortgage and balloon payment mortgage. Each of these new home mortgage types has different advantages and disadvantages. Selecting the right mortgage for your particular financial situation should be done after reviewing the major factors in each of the above loan types to find one that fits. Be sure you have looked at the immediate results of a specific mortgage type as well as the long term effects of the loan. Three years into the mortgage payment period is not the time to discover you can't afford the loan.

How much can you afford?

This is a critical factor in choosing a new home mortgage that will enable you to meet your financial obligations easily without undue financial stress on you and your family. Lenders often use a guideline for affordability of your proposed home purchase based on 2.5 times your annual salary, but this figure can vary depending on the lender and upon the level of your income. It may also be affected by other characteristics such as your credit score, the economy of the region or the country, and whether it is a new home or a pre-owned home.

What other factors enter into the type of mortgage selected?

In addition to reviewing your ability to repay the new home mortgage, other factors are important in selecting the mortgage type for which you should apply. For example, your past history in managing your credit obligations may be a factor in choosing your new mortgage. You will also need to look at your debt load and whether you have excessive credit card debt or other payments. Your job history may be reviewed to see whether you typically stay with an employer or whether you bounce from job to job. If you have moved several times in the recent two year period, you will probably need to be able to explain why that was necessary to a potential lender.

Your credit score

Your credit bureau score often called the FICO score is a representation of your creditworthiness as perceived by the three major credit bureaus. Lenders often use the FICO score in determining your qualification for various types of mortgage loans. When you have a low FICO score, the type of new home mortgage that you can qualify for may be limited. Conversely, you have more options both in the type of mortgages that are available to you and the terms of the mortgage when your credit score or FICO score is high.

Saving money on your mortgage

No matter which type of new home mortgage that you select, there are ways to reduce the cost of the mortgage. For example, you can lower total interest costs by reducing the term of the loan, such as getting a 25 year loan instead of a 30 year loan. This can save a significant amount in overall costs.

Selection of a new home loan is facilitated by finding internet resources that provide information and assistance about the subject. One of the best sites for the subject of home loans is located at New Home Mortgage or Home Mortgage.