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linashino's Blog
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Untagged	22 Dec 2009 2:29 PM
How much do you know about mortgages? by linashino

Not everybody has the amount of money to purchase a house or a piece of land to build a house. Not all of us can come up with that much money in one day, therefore we need to “ask” for some money. That is the reason why mortgages exist. The system is very simple: we need money to buy something. A lender gives us this money and they we pay this money back. However, this system can become a burden. Mortgage rates can sometimes turn into a something difficult to deal with. When we ask for money, the ideal thing would be to have a fixed mortgage. They are considered the safest of all types of home loans. The advantage of the fixed rate mortgage is that the payment is the same each month. The disadvantage is that the interest is generally a little higher than an adjustable rate or interest only loan. If what we want is to have lower interests we can choose an adjustable rate or variable rate. The advantage of a variable rate mortgage is that the rate and monthly payments are usually lower than a fixed rate mortgage. The disadvantage is that the rate can go up if the Treasury bill rate increases, suddenly increasing your monthly payment. Another choice to finance your home is an interest-only loan. The advantage of this home loan is that at first you enjoy a much smaller payment the first few years by paying the interest only, but this can cause some serious trouble if you aren't careful. The disadvantage is that many people who used this option to keep payments low in the past few years have discovered that they now owe more on their home than it is worth, due to falling housing prices. Yet, we can find another disadvantage for this kind of loan. That is that many people "forget" that their payment is going to double or even triple at the end of the interest-only period. As a result they are unable to make those higher payments when they have to.

You can also find FHA/VA Loans. This is a kind of home loan that is given to veterans of the Armed Service. The Federal Housing Authority (FHA) allows low- and moderate-income families to buy a home by offering them lower down-payment requirements and lower interest rates. Next we have the Combo 80/20 Home Loan which is actually two loans instead of one, a Combo 80/20 loan is offered to borrowers with no money set aside for a down payment. They borrow 80 percent of the mortgage using a conventional fixed-rate mortgage, then you can borrow the remaining 20 percent of the purchase price by taking out a second loan for a shorter period of time at an adjustable rate. And last but not least we have the Home Equity Loan which is an open account that allows the borrower to take money from the account when needed with no further explanation or required acceptance by the bank. The money is always available, and interest is only applied to the amounts taken, however, the interest rate is adjustable monthly, which can drastically change the amount of the payment due.

It is very important to be aware of what we are signing when we ask for a home loan. Since some borrowers are not aware of that they have found themselves in deep financial trouble.

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