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Have you already started with house hunting? Or you might be planning on refinancing your existing home loan, and are thinking of an alternative mortgage strategy. Pre-determining how much you have to pay every month is a great boon for borrowers. It gives them a chance to budget their mortgage so as to pay their bills every month.
Exotic mortgage, or innovative mortgage products, do have certain features that let the borrowers choose to lower down their monthly payments in the first few years of the loan. However, they would have to make higher payments throughout the remaining years of the loan. Most borrowers think that they would have to refinance their home loan before it goes even higher. However, not knowing the risks of these decisions may lead to even bigger problems.
To help you decide, you have to understand the three most common home mortgage categories available today:
Interest- only Mortgages lets the borrower pay the interest charge on the mortgage's outstanding principal balance. You can get the actual computation by dividing the mortgage interest rate by twelve, which represents the months in a year, and then multiply the number by the mortgage's principal balance. Interest- only home loans are available in both ARMs and fixed rate home loans.
In graduated payment home loans, also called fixed- rate negative amortization home loans, the interest rate is set for the mortgage's term. However, the mortgage has a series of scheduled initial payments that usually starts at an amount which is less than the interest- only payments.
Payment Option home loans are most often called payment options ARMs. It is a bit more complicated than the other home loan products mentioned. A minimum initial payment is based on the temporary start interest rate that last upwards of three months. During this period, the monthly payment that's made by the borrower is considered as a fully amortizing payment.
You should always try to get in touch with your real estate agent or mortgage lender so that you'll know about your other options. Choosing the the right mortgage is quite important especially if you're just starting out.
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