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Choices That Will Affect Your Loan |
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Tuesday, 03 April 2007 |
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There are a few decisions your going to have to make that will directly effect your loan. Here is a look at a few of them.
- Mortgage term.
Mortgages are generally available at 15-, 20-, or 30-year terms. The
longer the term, the lower the monthly payment if the same amount is
borrowed. However, you pay more interest overall if you borrow for a
longer term.
- Fixed or adjustable interest rates.
A fixed rate allows you to lock in a low rate for as long as you hold
the mortgage and is usually a good choice if interest rates are low. An
adjustable-rate mortgage is designed so that interest rates will rise
as interest rates increase; however they usually offer a lower rate in
the first years of the mortgage. ARMs also usually have a limit as to
how much the interest rate can be increased and how frequently they can
be raised. ARMs are a good choice when interest rates are high or when
you expect your income to grow significantly in the coming years.
- Balloon mortgages
offer very low interest rates for a short period of time—often three to
seven years. Payments usually cover only the interest, so the principal
owed is not reduced. However, this type of loan may be a good choice if
you think you will sell your home in a few years.
- Government-backed loans, sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the Department of Veterans Affairs (www.va.gov), offer special terms, including lower downpayments or reduced interest rates—to qualified buyers.
Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment.
For help in determining how much your monthly payment will be for various loan amounts, use Fannie Mae’s online mortgage calculators.
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