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Homeowners Encouraged to Consider Mortgage Options

By Sally Maison
Published: Saturday, December 19th, 2009

It is the time of the year when applications for mortgage refinancing goes up. Homeowners have been working hard for months to get a good credit score so they can get the best interests. Experts note that interest rate is the first thing a homeowner looks into when applying for refinancing. However, they tell consumers that there are many other things they should be looking into, aside from low interest rates.

Homeowners Encouraged to Consider Mortgage OptionsIndustry specialists say a person must look into the overall loan before making a commitment, advising consumers to also check the loan term and other repayment conditions. They add that while this task could be both daunting and strenuous, homeowners need not worry since there are many price comparison websites available that already have a summary of information that could be very helpful to mortgage shoppers.
Specialists note that consumers usually consider three types of rate options when applying for a mortgage loan: fixed-rate, adjustable-rate, and interest-only loans. Previously, homeowners can only avail of the first option. A fixed-rate mortgage allows a homeowner to pay his loan with the same interest rates throughout its duration.

Finance advisers often recommend a fixed-rate mortgage, especially to people with excellent credit ratings, since predictable monthly payments allow them to make long-term financial plans. However, experts observed that even people with little debts and high credit scores are not able to get a fixed-rate deal because of small income.
To meet the needs of low-income and low credit score individuals, mortgage lenders came up with a new lending term called an adjustable-rate mortgage (ARM). According to specialists, ARMs allows property owners to borrow at a low initial rate for the first one to three years of his loan. Incremental rates follow during the rest of an ARM loan.

As of late, the mortgage industry has seen an increase in a new type of mortgage loan: interest-only. This type of mortgage loan, specialists say, requires a borrower to pay down the whole loan’s interest rates for the first five years of its duration. The principal will not be paid down during that period.

According to experts, ARMs and interest-only mortgages often offer a very low “teaser” rate, which makes it very attractive to people who have low income or bad credit ratings. During the first few years of an ARM or fixed-rate mortgage, a borrower’s credit score might improve, making it possible for him to refinance a loan through a fixed-rate mortgage. Experts also note that those options can be very useful when it comes to improving a credit score.

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