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Although you may hear about many different types of mortgage
loans, they all belong to two families: conventional
and government . These loans are
available through various mortgage lenders.
The major advantage of fixed rate mortgages is that you know
what your housing costs are for the life of the loan. Some
fixed-rate mortgages you will probably hear about are:
- 30-year fixed-rate mortgage
This is the easiest fixed-rate loan to qualify for. It keeps
your monthly mortgage payments low by making your payments
over a longer period of time. However, the longer the term
of the loan, the more total interest you will pay. This
mortgage loan may be ideal if you plan to remain in your
home for years and wish to keep your housing expense low.
This loan also provides maximum interest deduction for tax
purposes.
- 15-year fixed-rate mortgage
The 15-year mortgage offers a lower interest rate than a
30-year mortgage. This type of shorter-term mortgage will
save you a significant amount of interest over the life of
the loan. By paying off the mortgage more quickly, you also
build up equity in your home soon. However, the monthly
payments you make will cost you more than those on a 30-year
mortgage.
With an adjustable-rate mortgage (ARM), the interest rate you
pay is adjusted from time to time to keep it in line with
changing market rates. This means that when interest rates go
up, your monthly mortgage payments may go up, too. On the other
hand, when interest rates go down, your monthly mortgage
payments may also go down.
ARMS are attractive because they may initially offer a lower
interest rate than fixed-rate mortgages. Since the monthly
payments on an ARM start out lower than those of a fixed-rate
mortgage, you can qualify for a larger loan. You may want to
consider an ARM if you are confident your income will be enough
to comfortably handle any increase in payments, if you plan to
move in a few years, or if you need a lower initial rate to
afford to buy the home that you want.
Before applying for an ARM, find out how high your monthly
payments could go – the "worst-case scenario." An
ARM has two caps on how large an interest rate increase is
permitted.
One cap sets the most that your interest rate can go up
during each adjustment period. For example, your ARM may cap the
yearly interest rate increases at 2 percent, meaning that the
adjusted interest rate can never be more than 2 percent higher
than the previous year.
The other cap sets the maximum total amount of all interest
adjustments over the life of the loan. For example, your ARM may
have a lifetime rate cap of 6 percent, meaning that the highest
adjusted interest rate you can ever be required to pay is no
more than 6 percent above the original rate.
Finally, one important thing to know when comparing ARMs is
that the interest rate changes on an ARM are tied to a financial
index. A financial index is a published number or percentage.
Lenders use this index to measure the difference between what
they are making on their investment in the mortgage and what
they could be making on other types of investments. The most
popular financial index is based on the rate of return on a
one-year a Treasury bill (T-bill).
To obtain these loans, you apply through a lender that is
approved to handle them.
- FHA Loans
With a FHA loan, you can purchase a home with very low down
payments (from 3 to 5 percent of the FHA appraisal value or
the purchase price, whichever is lower). FHA mortgages have
a maximum loan limit that varies depending on the average
cost of housing in a given county. They are available in
both fixed-rate or adjustable-rate mortgage plans
- VA Loans
The federal VA guarantee allows qualified veterans to buy a
house costing up to $203,000 with no down payment. State VA
loans are available to veterans of Wisconsin. Qualifications
vary depending on the time enlisted in the armed forces and
the availability of funds. You must check with either the
state of Wisconsin Department of Veterans Affairs or a
participating lender to determine your status.
- Rural Development
Rural development loans offer home loans with no down
payment requirements to low- and moderate-income persons who
live in rural areas or small towns.
- WHEDA Loans
WHEDA’s HOME program features low down payments and
below-market interest rates. And with HOME, your rate is
fixed for the term of your loan – from 15 to 30 years. You
must meet certain requirements in order to be eligible for a
HOME loan.
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