Mortgage Tips

Owning a home is one of the main ingredients of achieving the “American Dream.” You’re probably reading and hearing about the mortgage crisis in America right now. It’s real, but the main thing to remember is that, like all crises, it will pass – eventually.

The mortgage crisis that we’re facing right now is the direct result of predatory lending practices by lending institutions. People were “qualified” for a mortgage for which they weren’t actually qualified. The subprime mortgage rate combined with adjustable rate mortgages and unadulterated greed was like a balloon filled with too much air. It burst! Lots of people got hurt, and the end isn’t yet in sight.

Nevertheless, owning a home is still part of the American dream, and people are still buying homes. If you are one of those that dream of owning your own home, there are some facts about mortgages that you do need to be aware of. Mortgages are not all created equally.

The Fixed Rate Mortgage: A fixed rate mortgage means that the interest rate will not change for the duration of the loan. If the mortgage is for 30 or even 40 years, the rate that you agree to when you buy the home is the rate that you will still be paying when you make the final mortgage payment. The interest of a fixed rate mortgage isn’t tied to market fluctuations – good or bad.

The Adjustable Rate Mortgage: Unlike a fixed rate mortgage, the interest charged on an adjustable rate mortgage is tied directly to market fluctuations. If you get the mortgage when the interest rate is low, when the interest rate rises, your monthly payment will increase. On the other hand, if the interest rate decreases, your mortgage payment will decrease.

There are other types of mortgages available; the balloon mortgage and the jumbo mortgage are two examples. The main thing is that you investigate your options before you sign on the dotted line.

By: Milos Pesic