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The most common type of home financing is called fixed rate. Approximately 70% of homebuyers go with this option. In a fixed rate mortgage, the interest rate is locked in for the duration of the loan. The rest of the loan is divided up into equal monthly payments. Most fixed rate loans are for 30 years although they are also common for 10, 15 or 20 years. Some do exist longer than 30 years but don't offer much benefit to the consumer. A 40-year plan would not significantly lower the monthly payment and would add 10 years of interest onto the loan. Fixed rate loans are popular because it is stable. Homeowners always know what their monthly payment will be, regardless of the state of the economy. This type of loan works well for homeowners who plan to stay in their homes longer than just a few years. If you know you are staying put, this may be a good option for you. Another option is to get an adjustable rate mortgage. With this type of loan, the interest rate is dependent on the current market rate, which is constantly in flux. Each time the interest rates are adjusted up or down, the amount of the homeowner's monthly payment will follow suit. An adjustable rate loan will require a bit more study than the fixed rate. It is important to understand the index that the rates are based on and the margin amount (added to the index to determine the rate). Caps are often put on the amount the interest rate can change from one adjustment period to the next, and the amount the rate can go up over the entire duration of the loan. A hybrid mortgage combines features of both fixed rate and adjustable rate loans. These loans act at a fixed rate for a certain period of time, usually 3 to 10 years. Then the loan acts as an adjustable rate loan for the remainder of the time. Homeowners who want to take advantage of lower interest rates, but aren't comfortable committing to an adjustable rate type, can switch to a hybrid loan. A hybrid loan is not recommended for people who plan to stay in their home longer than 10 years. If you plan to stay in your home for 3 to 7 years and either sell or refinance after that, a hybrid loan may be a good choice. There are a variety of different kinds of fixed, adjustable and hybrid mortgages. Whichever kind of loan you choose, don't sign until you understand all the aspects of how it works. Remember, when it comes to deciding on a mortgage, the best decision is a well-informed decision. Do you need to take out new mortgages? Fenton MI residents can seek assistance from https://www.financialplusfcu.org. COMMENTS:
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