An adjustable rate mortgage has an interest rate that changes with a predetermined index. This means that the interest rate will most likely change over the life of the loan, and that monthly payments will not remain the same from one period to the next. These periods between rate adjustments can be as long as five years or as short as one year. The disadvantage with an adjustable rate is obvious: you can not predict how the index with fluctuate and rates could rise, but adjustable rate loans come along with a rate cap to keep your rate from going too high. Also, adjustable rates usually come with an low introductory rate, and if rates were to drop, someone with an adjustable rate could end up paying less than someone with a fixed rate. An adjustable rate is also good if you plan on moving five to seven years after buying the house.
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A home is the largest purchase that most of us will make during the course of our lives, and often, it is one of the most important. This makes choosing the mortgage loan that covers the cost of this house one of your most important decisions as well. Since there are many types of mortgage loans, you should be able to find one that suits you.
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A fixed rate mortgage has in interest rate that remains the same throughout the life of the loan. This ensures that your monthly payments at the start of the loan will be the same at the end of the loan. Fixed rates carry less risk than rates that are subject to change and if rates were to drop substantially, a homeowner with a fixed rate could always refinance if he or she thought it there was a possibility of locking in a lower rate.