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January 14, 2013
Making the right loan decisionFor most people, buying a home is one of the most important financial decisions you will ever make. Fully understanding what options are available when it comes to your home loan is an important part of the buying process.

There are three major types of home mortgages; fixed-rate mortgages, adjustable-rate mortgages and conventional loans. Each offers its own incentives and dis-incentives so it is important to understand the differences between them.

Fixed-Rate Mortgage

As it implies, a fixed-rate mortgage has a fixed interest rate for the life of the loan. This is considered the most traditional type of home loan and is the most popular choice among homeowners due to its predictable fixed monthly payment. Fixed-rate mortgages are typically offered in a 15-year or 30-year term. If you are looking at a FHA, government insured loan, this is likely the type of loan you will be offered.

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage differs from a fixed-rate loan in many ways. Unlike the fixed-rate loan, the interest rate on an ARM will change over time based on the index it is associated with. All adjustable-rate mortgages come with a pre-set margin and are tied to a major mortgage index. Your monthly payment will fluctuate based on market conditions.

In general, you will be charged a lower initial rate that will usually adjust upward during the life of the loan, presenting a good option for borrowers who plan to stay in their home for a short period time.

Conventional Mortgage

A conventional mortgage is not insured by the government in any way.  This means if a borrower defaults on the loan, the bank cannot collect from a third party underwriter such as Fannie Mae or Freddie Mac. Two primary benefits of conventional mortgages are often lower fees than a government backed loan, and flexible payment options. However, strict standards on your debt to income ratio and a higher credit score are usually required. These can be offered as a fixed-rate or adjustable-rate loan.

No matter what type of loan you are looking for First Option Mortgage’s experienced loan professionals can sit down with you to give you the most accurate information and professional help. To learn more, simply fill out our Fast Response form or give us a call at 888-644-1999.

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