Types Of Mortgages: Mortgages- Adjustable Rate Of Interest

Category: Finance, Mortgages.

A mortgage is a kind of an agreement made to pay the money, to a person, which was loaned by keeping the house as collateral.

Mortgages have terms and interest rates which are either adjustable or fixed. Mortgage is a promise made to pay the debts by putting it in writing basically. Mortgage terms: Mortgages are designed in such a way that they can be paid in installments for a certain period. The term may be 10 or 15 or even 30 years. The time frame which allows the person to pay back his mortgage is called the term. The length of the term determines the amount of money to be paid, which is actually spread in installments. The interest rates vary according to the credit score of the person.

Mortgage interest rate: The interest rate depends on the percentage to be paid on the mortgage loan amount. If the credit score of the person is very high, the interest rate and the amount of monthly installments are lower. Hence a good credit score will help getting lower interest rates to the debtor. If the credit score is lower then the interest rates and the monthly installment amount are higher. Types of mortgages: Mortgages- Adjustable rate of interest. The degree of change of mortgage interest rate is directly associated with the index to which it is tied.

Under this type of mortgages, the interest rate changes from period to period according to the fluctuations of the market. Since index will differ as they may be tied to a foreign bank rate of interest in certain cases, it is good to ask to which index the adjustable rate of interest is tied to. Mortgages- fixed rate: The interest rate of the loan amount is fixed in the case of fixed rate mortgage till the end of the term regardless of the market fluctuations. Usually they are fixed for a period of 1- 5 years and then become adjustable. The debtor will never have to pay more than the fixed interest rate at any cost. Refinancing: It is a process of changing the existing mortgage terms of agreement. The only means by which a fixed rate mortgage can change is through Refinancing.

The debtor can go for refinancing when the interest rates are lower so that he can save money qualifying for the lower rate of interest. Care needs to be taken when going for refinancing of mortgages as it entails for new closing costs. The length of the term can also be adjusted to be either long or short using refinance option. Fees and closing costs are involved in this method. Before going for a loan from a bank, the value of the house must be assessed properly. Appraisal: The crucial part of mortgage is the appraisal. An appraiser can determine how much the house is worth actually by inspecting the features of the house and by comparing it with the neighborhood houses.

If any addition or embellishment is made to the house, it can raise the value of the house, but may require to appraise the new value of the document.