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MORTGAGES MADE SIMPLE

So you want to buy a new home. Unless you have the cash to entirely finance the purchase, you'll need to get a mortgage, a legal contract that pledges a property as security for a loan. The property is basically the collateral for the mortgage that you take out. If you don't make payments as agreed in the mortgage contract, the lender can take possession of your home through foreclosure.

Since the cost of a home can run into hundreds of thousands of dollars, a mortgage loan tends to be for a very large sum of money that you get to pay off over a long period of time, usually around 15 to 30 years. You can obtain a mortgage from a bank, a mortgage broker or wholesale lender. Since a mortgage represents a hefty investment on your part, and there are many kinds from which to choose, it's wise to be diligent in your research and selection of a particular mortgage loan. Be absolutely sure that it is well suited to your needs and that you can afford to pay it for as long as you plan to remain in the home.


MOST COMMON MORTGAGES

• Fixed Rate (FRM): the mortgage-payment rate and loan payments remain fixed for the life of the loan, usually 30 years. Shorter term fixed rates (usually 15 or 20 years) carry lower interest rates, higher payments, and less money paid out than with longer term loan mortgages. Longer term fixed rates have smaller monthly payments and are easier to budget than shorter term mortgage loans.

• Adjustable Rate (ARM): interest rates start lower than with a fixed-rate mortgage, but then become variable. At specific intervals (typically every year), a lender adjusts the rate up or down as interest rates fluctuate. Its lower initial rate can help you qualify for a larger mortgage loan. If you know your income will rise to keep pace with an ARM's periodic adjustment, and you plan to move in a few years, an ARM could be a good choice.

OTHER, LESS COMMON MORTGAGES

Although the majority of buyers will go with the standard fixed-rate or adjustable-rate mortgages, there are other types of mortgages that are available to finance your piece of real estate:

Balloon: gives borrowers lower rates and payments for a specific period of time - anywhere from three to 10 years. After that point, the borrower has to pay off the principal (amount borrowed) balance in a lump sum. Under certain conditions, they can be converted to fixed-rate or adjustable-rate loans. Many borrowers either sell their homes before they get to their due dates, or end up refinancing their balances into new mortgages. This is a great mortgage option for buyers who don't plan on living in the property for long. A disadvantage is that if your plans change and you decide to remain in your home, you will have to pay off your mortgage, or refinance the balance, which will result in more closing costs.

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