Understanding Re-Financing
Understanding the process of re-financing can be quite dizzying. Homeowners who are considering re-financing might initially be overwhelmed by the number of options available to them. However, after taking some time to educate themselves about the process, they will likely find the process is not nearly as daunting as they had imagined. This article will discuss some of the options available to those interested in re-financing as well as some of the important factors to consider in order to determine whether or not refinancing is worthwhile.
Consider the Options
Homeowners have quite a few options available to them when they are considering the possibility of re-financing their home. The most significant decision is the type of loan they will choose. Fixed rate mortgages and adjustable rate mortgages (ARMs) are the two main types of mortgages the homeowners will likely encounter. Additionally there are hybrid loan options available.
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Types of Mortgages
In today’s market, there are numerous types of mortgage loans that consumers can use to obtain financing for a home purchase. Let’s take a closer look at each.
Fixed Rate Mortgage. This is the traditional form of mortgage. It offers the consumer a fixed interest rate and fixed monthly payments for the life of the loan, typically 15 or 30 years. A portion of the monthly payment goes toward interest and the remainder goes toward the principal. Over time, the portion allocated to interest gradually declines and the portion allocated to principal gradually increases until the loan is completely repaid.
Biweekly Mortgage. This is a variation of the Fixed Rate Mortgage in which the payments are scheduled every two weeks instead of once a month. Each payment is one-half of the normal monthly rate. Due to the higher frequency of payments, the borrower will actually pay off the loan sooner and pay less in total interest costs.
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