Your first decision may be deciding whether you qualify for a fixed rate loan
or an adjustable rate loan:
- A fixed rate loan means that the interest rate will not change throughout
the life of the loan. The monthly payment you have the first year of the loan
should be the same as the monthly payment the last year of the loan. A fixed
rate provides you with the stability of knowing exactly what your payments
will be, but can leave some people dissatisfied if rates drop substantially
over the years as they repay their loan. If this happens you have the option
of going through the loan process again and refinancing your mortgage to take
advantage of the lower rate.
- An adjustable rate loan has an interest rate that fluctuates with certain
indexes. An example of such an index would be the average rate of a one year
Government Treasury Security. An adjustable rate loan does not offer the security
of a fixed rate, but it generally has low introductory rates, and, if the
rates drop, a homeowner with an adjustable rate can wind up payment less in
interest than a homeowner with a fixed rate. Adjustable rate loans have predetermined
periods between adjustments in the rate. These periods can be as low as one
year or as high as five years.
