Mistakes made with regard to your mortgage could cost you thousands of dollars. To prevent making common mortgage mistakes you need to do your homework before shopping for a mortgage. Here are the basic types of mortgage loans.
Traditional Fixed Interest Rate Mortgage Loans
This is the old-fashioned mortgage your grandparents had. The interest rates and payment amounts are fixed for the duration of the loan. Fixed rate mortgages are the safest mortgage available and recommended for most homeowners.
Adjustable Interest Rate Mortgages
Adjustable rate loans are simply a mortgage that changes the interest rate at periodic intervals. The interest rate in an adjustable rate is tied to some financial index. The mortgage lender will add a premium markup to this interest rate and adjust your mortgage to this new rate. Adjustable rate mortgages change their interest rate and monthly payment amounts at regular intervals specified in your loan contact. The advantage of an Adjustable rate mortgage is that when interest rates are low, your monthly payment will be low. This advantage quickly evaporates when interest rates rise as they have over the last year.
Hybrid Mortgages
Hybrid mortgages offer the best of both worlds. The hybrid mortgage offers a fixed interest rate for the initial period and converts to an adjustable rate mortgage after that. A 5:1 hybrid mortgage for example, offers a fixed interest rate for five years, then adjusts to the current interest rate plus lender markup every year after that. Hybrid loans are great for homeowners that want to take advantage of lower interest rates but do not want to commit to a 15 or 30 year mortgage. If you are putting off refinancing because you might be moving in five years, a hybrid mortgage with no prepayment penalty could be your answer.
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Louie Latour has twenty years of experience in the mortgage industry as a mortgage broker. He is the owner of Mortgages Refinance Advisor, a mortgage help site devoted to saving homeowners money with a free guidebook