Understanding Mortgage Options: Are Payments Flexible?

By Karen Lawson
LoanPage.com Columnist

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Due to unprecedented booms in real estate prices in many areas, lenders have developed adjustable rate mortgages with the goal of making homeownership affordable. Although this can assist those who live in areas where housing is very costly, these loans are usually structured so that payments increase after an initial period of reduced payments.

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Paying Attention to Mortgage Loan Terms

Your lender's job is to provide mortgage loans that enable people to buy homes. In the excitement of buying a new home, borrowers may not pay close attention to the terms of their mortgage loans. It's easy to let the mortgage lender recommend a loan, then, once discovering that you qualify, just going ahead and signing the papers without understanding all the details of the loan. Everything seems OK until you receive notice that your payments are increasing significantly. Knowing how your mortgage works can help avoid problems later.

» Interest rate: How much and for how long? Some lenders and homebuilders offer very low '"teaser rates" that are only in effect for a short time. What comes next?
» Repayment schedules. This shows how much you will pay on your mortgage over its entire term, along with rate adjustments that may be tied to a financial index. This can make it difficult to know how your payment will adjust. Ask your lender about this, and if you aren't comfortable with this kind of loan, look for mortgage loans that offer specific rate schedules.
» The life, or term, of your mortgage loan: How long until you will have to refinance your current mortgage? Some lenders offer loans that calculate payments over thirty years, but the loan must be paid off sooner, which leaves a large balance due. This type of mortgage can work if you're likely to move before the loan term expires.

It's always a good idea to know all of the terms of a mortgage loan before accepting it. Shopping for mortgage loans in advance of buying a home can help you avoid surprises later.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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