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With so many types of mortgages to choose from, it's essential to understand the terms of the loan before you sign:
* Will the interest on your ARM be adjusted every year, every six months or every month?
* Is there a cap on the interest? Does the cap apply to the first adjustment or only to subsequent adjustments? Is there a cap on your payments, which could cause your obligation to soar?
* Does the mortgage include prepayment penalties or balloon payments?
Private mortgage insurance, known as PMI, can cost hundreds of dollars a month.
* Will the interest on your ARM be adjusted every year, every six months or every month?
* Is there a cap on the interest? Does the cap apply to the first adjustment or only to subsequent adjustments? Is there a cap on your payments, which could cause your obligation to soar?
* Does the mortgage include prepayment penalties or balloon payments?
Private mortgage insurance, known as PMI, can cost hundreds of dollars a month.
- You can avoid having to buy private mortgage insurance (which protects the lender, not you) by putting down at least 20% on your home.
- You could also take out what's known as a piggyback loan. Your primary loan would cover the first 80% of the value of your house. A piggyback loan is a second mortgage that would cover the remainder, usually at a much higher interest rate.
- If you have to buy private mortgage insurance, ask to have it canceled when you've reduced your loan balance to 80% of your home's appraised value. Once you've reduced your loan balance to 78%, the lender must cancel your PMI unless you're considered a credit risk.
source : MSN
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