IntroductionMortgages Come In Many Different Shapes And Sizes, Each With Its Own Advantagesand Disadvantages. Since Mortgage Debt Is Often The Largest Debt Owed By Thedebtor, Banks And Other Mortgage Lenders Run Title Searches Of The Realproperty To Make Certain That There Are No Mortgages Already Registered On Thedebtor's Property Which Might Have Higher Priority. Tax Liens, In Some Cases,will Come Ahead Of Mortgages.Here Are Some Basic Things To Know About Mortgages:Mortgage Companies And Lenders Are The Institutions That Will Lend You Money Topay For Your Home.It Is A Good Idea To Shop Around For A Lender Or Mortgagecompany, As Every Institution Will Offers Different Mortgage Rates Andmortgages. How Mortgages Work, Where To Get One And The Different Dealsavailable Types Of Mortgage. Other Forms Of Mortgage Loan Include Interestonly Mortgage, Fixed Rate Mortgage, Negative Amortization Mortgage, And Balloonpayment Mortgage. One Of The Decisions You'll Have To Make Includes Whether Toget A Fixed Rate Mortgage (FRM) Or An Adjustable Rate Mortgage (ARM). FixedWith A Fixed Rate Mortgage, Your Monthly Rates Will Always Be The Same. Due Tothe Inherent Interest Rate Risk, Long-term Fixed Rates Will Tend To Be Higherthan Short-term Rates (which Are The Basis For Variable-rate Loans Andmortgages). Some Fixed-rate Loans Start With One Rate For One Or Two Yearsand Then Change To Another Rate For The Remaining Term Of The Loan. If Youfeel The Current Rates Are Low And You Plan To Stay In Your House For A Longtime, You May Want To Consider A Fixed-rate Loan. With A Fixed-payment Loan,if The Borrower Was Unable To Meet The Fixed Payment, They Would Risk Late Feesor Foreclosure.ArmARMs Generally Permit Borrowers To Lower Their Payments If They Are Willing Toassume The Risk Of Interest Rate Changes. An Adjustable Rate Mortgage (ARM),variable Rate Mortgage Or Floating Rate Mortgage Is A Mortgage Loan Where Theinterest Rate On The Note Is Periodically Adjusted Based On An Index. A Hybridadjustable-rate Mortgage (ARM) Is One Where The Interest Rate On The Note Isfixed For A Period Of Time, Then Floats Thereafter. Hybrid ARMs Are Referredto By Their Initial Fixed Period And Adjustment Periods, For Example 31 For AnARM With A 3-year Fixed Period And Subsequent 1-year Rate Adjustment Periods.After The Reset Date, A Hybrid ARM Floats At A Margin Over A Specified Indexjust Like Any Ordinary ARM. The Popularity Of Hybrid ARMs Has Significantlyincreased In Recent Years. Like Other Adjustable-rate Products, Hybrid ARMstransfer Some Interest Rate Risk From The Lender To The Borrower, Thus Allowingthe Lender To Offer A Lower Note Rate. An "option ARM" Is A Loan Where Theborrower Has The Option Of Making Either A Specified Minimum Payment, Aninterest-only Payment, Or A 15-year Or 30-year Fixed Rate Payment In A Givenmonth. When Pricing An Option ARM, Never Focus On The Start Rate Of 1 Or 2,consider Only The Fully Indexed Rate (FIR) Which Is The Margin And The CurrentIndex Being Used (12-MTA, LIBOR, Etc. The Main Risk Of An Option ARM Is"payment Shock", When The Negative Amortization Reaches A Stated Maximum, Atwhich Point The Minimum Payment Will Be Raised To A Level That Amortizes Theloan Balance. Historically, Option ARM Mortgages Have Been Used Effectively Tominimize Income Taxes And Maximize Mortgage Interest Deductions By High Networth Homeowners Whose Earnings Are Primarily Derived From Passive Orinvestment Income. Option ARM Mortgages Are Increasingly Available In Hybrid,or Temporarily Fixed Rate Varieties, From 3 To 10 Years, Mitigating Certainnegative Amortization Characteristics Of The Popular Adjustable Rate Variety.As An Example, A 51 ARM Means That The Initial Interest Rate Applies For Fiveyears (or 60 Months, In Terms Of Payments), After Which The Interest Rate Isadjusted Annually. Calculating This Is Important For ARM Buyers, Since Ithelps Predict The Future Interest Rate Of The Loan. This Is The Major Risk Ofan ARM, As This Can Lead To Severe Financial Hardship For The Borrower. ConclusionMortgages Are A Necessary Part Of Home Buying. Mortgages Will Allow You To Owna Home, Whether A Starter Home Or The Home Of Your Dreams, Without Having Towait Until You Can Pay For It Outright. Whether You Are A First Time Buyerlearning About Mortgages For The First Time, Investing In Buy To Let Or Need Toremortgage But Have Bad Credit , We Believe That The Best Way To Prepare Youfor Your Mortgage Decisions Is To Keep You As Informed As Possible About Allthe Mortgage Types Available To You.
