Repayment methods

Published 03/24 2003 04:46PM

Updated 03/24 2003 04:46PM

Mortgages can come in a variety of different repayment methods and most loans can usually be repaid over a term of 30 years or less. They can either involve a fixed interest rate or a variable interest rate. Fixed-rate loans have the same principal and interest payments during the loan term. Property taxes and homeowners insurance may increase, but generally your monthly mortgage payments will be stable. Fixed-rate mortgages are available for 30 years, 20 years, 15 years, and even 10 years. There are also 'bi-weekly' mortgages, which shorten the loan by requiring you to pay half the monthly payment every two weeks. Variable rate loans, on the other hand, don't have a fixed interest rate. The interest rate changes at specified intervals depending on changing market conditions. If interest rates go up, your monthly mortgage payment increases. However, if rates go down, your mortgage payment will drop also. These loans generally begin with an interest rate that is 2 to 3 percent below a comparable fixed-rate mortgage, and could allow you to buy a more expensive home. There are also mortgages that combine aspects of fixed- and adjustable rate mortgages. They can start at a low fixed-rate for seven to 10 years, for example, then the interest rate adjusts to market conditions. Still, there are other loans that have short terms and a large final payment called a 'balloon.' It's recommended that you shop for the type of repayment method that best fits your current financial picture, how you expect your finances to change, how long you intend to keep your house, and how comfortable you are with your mortgage payment changing.

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