When it comes to getting a Mortgage we know interest rates play a very important part. A good lender (bank) will let you know all your options so you can choose the best mortgage package for you. This includes telling you about different interest rate options. Do not hold back from asking your lender about Fixed Rate Loans, Adjustable Rate Loans, Amortization Rate Loans and Negative Amortization Rate Loans.
A “Fixed Rate Loan” is one where the interest rate remains the same through the duration of the loan. Fixed rate loans are also considered to be “Amortized”. This means that as long as the person pays the principal and interest on time every month then by the end of the loan they are all squared up and don't owe anything.
When the market interest rates are low a lender will try and sell you an adjustable rate loan. The rule of thumb with loans are: If the interest rate is over 10% then an adjustable rate loan will serve you better. Under 10% it is advised to go with a “FMR” or Fixed Mortgage Rate. It is very important that you read the fine print on this moot point. Adjustable Mortgage Rates “AMRS” are very hard to understand sometimes. If you can't understand the contract do not sign until you get someone who makes it perfectly comprehensible to you. In 2006-7 this is the main reason for the massive foreclosures that occurred. It was due to the fact that the AMR's were high to begin with and then the payments went up to such a high interest rate that the people who bought their homes could not meet their payments.
Adjustable Rate Loans are guaranteed to fluctuate with the type of real estate market we have. The other consideration that makes the rate go up and down is the agreed index that is in the contract that gives it lee way to do so.
“Interest Loans” are only made up to cover interest. They are designed to be used when the payment is less than full interest. This type of loan does not cover the principal at all. When the loan is due the original balance is due. A mortgage interest is computed on a payment by multiplying the original balance of a loan and then multiply that by the interest and then dividing that figure by 12.
Negative Amortization is when the payment is less than the full interest and none of the principal is covered. When this occurs the interest accumulates and the principal owed increases. This is a debt bomb waiting to detonate.
When considering a loan for a mortgage or any loan you must consider the rate of interest. It can make the difference in your ability to pay a loan back. If need be shop around for the best loan you can get to suit your personal needs and not the needs of the lender.
If you need further help in figuring out mortgage interest rates, feel free to contact Team Carstensen.