If you are in the process of shopping for a mortgage you need to understand interest rates and which type of mortgage is best for you. Here are the basics of mortgage loan interest rates.
Mortgage interest rates come in two flavors: fixed interest rate loans and adjustable rate loans. Fixed interest rates are just that; your interest rate is fixed for the duration of the mortgage and interest rate hikes will not affect your monthly payment amount. Adjustable rate mortgages on the other hand come with variable interest rates. Your mortgage lender will adjust your interest rate and your monthly payment amount at regular intervals specified in your loan contract. If interest rates go up the lender will raise your adjustable interest rate and your monthly mortgage payment will go up accordingly.
Both types of mortgage interest rates have their advantages and disadvantages. Adjustable rate mortgages have the advantage of lower interest rates and typically come with a much lower introductory interest rate. You should note this introductory rate is not the actual interest rate; at the end of the introductory period the mortgage lender will adjust your interest rate to the actual rate. The disadvantage of adjustable rate mortgage is their vulnerability to interest rate hikes. When the Federal Reserve raises interest rates homeowners can see their monthly payments increase significantly; this is the risk inherent to adjustable rate mortgages.
Fixed interest rate mortgages offer the safety of knowing your interest rate will not go up at the hands of the government. Fixed interest rate mortgages come with a slightly higher interest rate than a comparable adjustable rate mortgage; you will pay more for piece of mind. To learn more about mortgages and how to avoid making common homeowner mistakes that will cost you money, register for a free mortgage guidebook.
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Louie Latour specializes in showing homeowners how to avoid common mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing: What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
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