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Types of Loans

Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that don’t change. This may be a good choice if you plan to stay in your home for ten years or longer. If you plan to move within ten years, then adjustable-rate loans are usually a better option. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.

Fifteen-Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus typically offers a lower interest rate—and you'll own your home twice as fast. The disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years. This approach is often safer than committing to a higher monthly payment, since the difference in interest rates isn't that great.

Ten-Year Fixed Rate Mortgage (Paid-in-10)
This loan is fully amortized over a 10-year period and features constant monthly payments. It offers all the advantages of the 15 and 30-year loan, plus typically offers a lower interest rate—and lower closing costs. The disadvantage is that, with a 10-year loan, you commit to a higher monthly payment. The advantage is that your home is paid off in a much shorter time period.

Hybrid Adjustable Rate Mortgage or ARM (1/1 ARM, 3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM)
These increasingly popular ARMs—also called 1/1, 3/1, 5/1, 7/1, 10/1—can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.

Adjustable Rate Mortgages (ARM)
When it comes to ARMs there's a basic rule to remember...the longer you ask the lender to charge you a specific rate, the more expensive the loan.

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