The Mortgage Beginner Guide

mortgage Finding the right mortgage to suit your budget and needs can be one of the most important decisions you will have to make in your life and should be something you understand completely. Here are some guidelines for the beginners who want to know the basics of a mortgage.

There are two basic types of mortgages that you can choose when you are looking at buying a property : fixed rate and adjustable rate mortgages. Fixed rate mortgages are generally set at 30 years with an interest rate that is a little higher than you’ll find at the same time in an adjustable rate mortgage. Fixed rate mortgages have a bit higher interest rate because you’re paying a little bit more for the stability that the fixed rate assures you. A fixed rate mortgage comes in two basic types: a regular mortgage that is within the limits set by Fannie Mae and Freddie Mac, and the jumbo mortgage that exceeds that amount.

The jumbo mortgage is harder to find a lender for because the high amount means that Fannie Mae or Freddie Mac will not buy the loan; the individual banks have to hold these types of loans instead, which results in a higher risk for them. The interest on a loan like this will likely be higher than the interest for a loan that qualifies for purchase by Fannie Mae or Freddie Mac.

The other basic type of mortgage is an adjustable rate mortgage or ARM. These are commonly set up as two-step mortgages because they are organized in a two-step interest system. For example, a 2/28 ARM is an adjustable rate mortgage where the interest rate is set low for the first two years and then defaults to an adjustable rate of interest which can be much lower or higher than the original interest rate and as a result can drastically change the mortgage payments.

Each type of mortgage has its place in the system and can benefit different types of buyers. Fixed rate mortgages are best for home buyers who’re looking to live in a home for a long period of time while ARMs are best for buyers who’re either looking to sell or refinance close to the time that their fixed rate portion of their mortgage comes due. In the long run, it can be well worth your while to pay a little more in interest to buy some stability and a little extra peace of mind, especially if you’re concerned about making higher payments in this current economic climate.