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Choose the Best Type of Loan

FHA. Conventional. ARM. Fixed-rate. 

You've got quite a few choices to make when it comes to mortgage loans. Making the right choice now can help you avoid problems later on. The good news is that many of the so-called exotic mortgage products disappeared in the wake of the housing crisis. Today, we are left with the traditional workhorses of the lending world. So the mortgage market is not as confusing as it was a few years ago.

 You have two choices to make at this stage:


Do I want a fixed or adjustable-rate loan?

Do I want so use a conventional or government-backed mortgage?

The first step is to choose the type of interest rate you want to lock in. A fixed-rate mortgage loan has the same interest rate for the entire life of the loan. An adjustable mortgage (ARM), on the other hand, has a rate that will adjust periodically with some predetermined frequency. Most of the ARMs in use today are actually "hybrid" loans that start with a fixed rate for the first one to seven years. After that the rate begins to adjust, usually every year.


You're better off using a fixed-rate mortgage if you're going to be in the home for a long time. If you think you'll only be in the home for a few years, an ARM loan could be a good way to save money. Technically speaking, you can use an ARM loan for any length of stay -- but it gets risky when you stay beyond the first adjustment phase. That's when the rate starts to fluctuate with market conditions. Usually, this means the rate will rise from one period to the next. And your monthly payment will rise along with it.

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