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Home Loan Types

The Pros and Cons

A good mortgage lender will take time to listen and understand your needs and goals before making a recommendation on the type of loan that will work best for you.

Important Considerations
  • How long do you plan to live in the home?
  • What is the interest rate environment like?
  • Could you still afford your monthly payment if rates rise significantly?

Fixed Rate Loans

Fixed Rate loans give you the peace of mind that your rate and payments will never change. This makes budgeting and planning your financial future simple. Fixed rate loans are a great option if you plan to live in your home for a long time.

Pros
  • Simplified budgeting and planning.
  • If interest rates rise, you are protected with your fixed rate loan.
  • The principal and interest part of the loan payment never changes.
  • If interest rates fall, you may need to refinance to get a better interest rate.
Cons
  • If interest rates fall, you may need to refinance to get a better interest rate.

Adjustable Rate Mortgage (ARM)

Adjustable Rate Mortgages give you a fixed rate for a portion of the loan, and then the interest rate adjusts yearly. ARM mortgages are hybrids that work together with your short and long term goals. Terms are normally 3/1, 7/1, and 10/1. The first number is how long the rate is fixed. The 1 indicates that the rate changes once per year after the fixed period ends.

Pros
  • May have lower initial interest rates than fixed rate loans.
  • Principal and interest does not change during fixed period.
  • If interest rates fall, you can take advantage without refinancing.
Cons
  • At the end of the fixed rate period, interest and payments may increase.

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