Tag Archives: types of mortgages

South Central Vermont Home Buyers Master the Mortgage Maze

A simplified guide for buyers of South Central Vermont home.

To a South Central Vermont home loan shopper, there may seem to be an endless–and confusing–array of mortgage types. Of course you want to choose the option that is best suited to your current and future financial situation, but understanding the terminology, types, and monetary ramifications is not always easy. Mortgages generally fall into four categories (fixed rate, adjustable rate, step, and balloon) according to the interest rate and duration of the loan.

Basic terminology;

Fixed rate–The interest rates do not change during the life of the loan, thus allowing you to know the amount of your payments.

Adjustable rate (ARM)–the interest rate is tied to certain indexes plus a margin and can fluctuate up or down, thus affecting each payment,

Step–the interest rate and monthly payment remain the same for a specified period of time. After that the interest will change to the prevailing rate and will remain there for the duration of the loan.

Balloon–a loan payment that expands after a certain amount of time. Basically it functions similarly to a fixed rate mortgage in the earlier months/years with a delayed steep increase at the end,

The following information, courtesy of Mortgages.Interest.com, outlines the type of mortgage, the loan characteristics, and the situations most appropriate for each one. If,  for instance, you plan to live in your South Central Vermont home more than 10 years and desire stability in payment amounts, then a fixed rate mortgage is for you. If, however, your finances are currently strained, but you know that in 5 to 10 years your monetary situation will improve or that you will most likely move within 10 years, then an ARM or balloon mortgage may be better for you. Being familiar with these options allows you to discuss them intelligently with your real estate agent and/or lender and then select the type which best fits your circumstances.

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