Posted on: 25th Dec, 2009 03:23 am
There are two different types of home loans depending on the mode of interest rate. These include fixed-rate mortgage loans and adjustable-rate mortgage loans.
In case of fixed-rate mortgage loans, interest rates are fixed for the entire period of loan, which means that the borrower is required to pay a similar amount every amount towards mortgage payment.
In case of adjustable-rate mortgage loans, interest rates are low during the initial 2-3 years, but are adjusted periodically depending on the market index. In most cases, the adjustments cause an increase in monthly mortgage payments. Many borrowers default with their monthly payments primarily because they are unable to adjust to the increase in monthly mortgage payments. Defaulting with loan repayments causes a significant damage to the credit history of an individual. In most cases, these individuals end up as bad credit customers. Borrowers defaulting with their mortgage payments or having bad credit often face the risk of home foreclosure. Home loan refinancing is a useful solution for such borrowers.
In case of fixed-rate mortgage loans, interest rates are fixed for the entire period of loan, which means that the borrower is required to pay a similar amount every amount towards mortgage payment.
In case of adjustable-rate mortgage loans, interest rates are low during the initial 2-3 years, but are adjusted periodically depending on the market index. In most cases, the adjustments cause an increase in monthly mortgage payments. Many borrowers default with their monthly payments primarily because they are unable to adjust to the increase in monthly mortgage payments. Defaulting with loan repayments causes a significant damage to the credit history of an individual. In most cases, these individuals end up as bad credit customers. Borrowers defaulting with their mortgage payments or having bad credit often face the risk of home foreclosure. Home loan refinancing is a useful solution for such borrowers.
Your short recap of fixed rate mortgages is fine. However, your explanation regarding adjustable rate mortgages is a bit off the mark.
Adjustable mortgages are fixed for a pre-determined about of time. 2-3 years is not entirely accurate since most of the adjustable rate mortgages that are originated are fixed for a minimum of 5 years. In addition, it is not necessarily true that the adjustment is in an upward direction. There are also caps to prevent the rates from going through the roof.
Adjustable mortgages are fixed for a pre-determined about of time. 2-3 years is not entirely accurate since most of the adjustable rate mortgages that are originated are fixed for a minimum of 5 years. In addition, it is not necessarily true that the adjustment is in an upward direction. There are also caps to prevent the rates from going through the roof.