Making Sense of Mortgages

In addition to comparing interest rates, Arkansas homebuyers have to choose from among a number of loans, each with its own set of pros and cons. Selecting the wrong loan could leave you in financial turmoil for years, and--in the worst case scenario--could even end in foreclosure. Arkansas Mortgage Quotes will help you determine which type of loan best fits your budget and financial needs to help keep you financially afloat in the future. Here are just a few of the different types of mortgages available today:

Fixed Rate Mortgage

True to its name, a Fixed Rate Mortgage features an interest rate that remains the same through the life of the loan. Therefore, you'll know exactly how much you'll be paying every month and how many months you'll be paying before the loan has been satisfied. While not as easy to qualify for as a few other loans, fixed rate mortgages remain popular among Arkansas Mortgage Quotes' customers because they offer no surprises.

Adjustable Rate Mortgage (ARM)

An Adjustable Rate Mortgage, more commonly referred to as an ARM, bases its interest on a fluctuating indexed rate plus a set margin. Therefore, your monthly payment will increase or decrease based on the index--although it won't go any higher than a set cap or lower than a predetermined bottom end. While the uncertainty of the interest rate may at first make this loan sound unattractive, a number of people come to Arkansas Mortgage Quotes asking about ARMs because the initial rate is always lower than that of a fixed rate loan. This allows borrowers to more easily qualify for the loan and makes their first year or two of payments less of a financial burden. The downside to that is the interest cap is almost always higher than that of a fixed rate loan, so in the long run the overall cost of the loan will be higher.

A word of caution: Many people get an ARM with the intention of refinancing at a fixed rate down the road. While this plan could certainly work to a homeowner's benefit, occasionally borrowers find themselves so overextended in the years following their move that their application for a fixed rate refinance is turned down. That leaves them trapped in their ARM, paying higher-than-average interest charges, for years longer than they'd originally planned.

One-Year Treasury ARM

This version of an ARM features a fixed rate for one year, followed by an adjustable rate--determined by the treasury average index combined with the loan margin--each year after for the life of the loan. When rates go down, so does your payment. But when rates go up, you might find yourself paying more than those with a fixed rate.

Hybrid ARM

Also called an Intermediate ARM, this loan--which combines elements of a fixed rate loan and an ARM--is available in three different forms. The 3/1 Hybrid ARM offers a rate that stays fixed rate for three years, then adjusts annually for the remainder of the loan. The 5/1 and 7/1 Hybrids offer fixed rates for five and seven years, respectively. Arkansas Mortgage Quotes rarely recommends Hybrid ARMS to borrowers planning to keep paying on the loan through its duration, as it usually ends up costing more money over time.

Flexible Option ARM

The interest rate in a flexible ARM is calculated daily and changes with each monthly payment. There is a change cap limiting how much the payments can change within a year. The borrowers choose from a menu of options to pay what they want monthly.

Interest-Only ARM

For the first five or 10 years borrowers of Interest-Only ARMS pay only interest charges. While that means incredibly low monthly payments on a relatively large loan, during that time no money is applied to the principal. And therein lies the downside. After 10 years, a borrower is still in debt for the full cost of the home; and if the home has gone down in value during that time, he or she now owes more on the house than it's worth.