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Decide What Loan You Want: The most important decision you will make using the Quoter determines the type of loan you want (rate calculation). The two basic types are: Fixed Rate Mortgages - Locking the current interest rate for the life of the loan reduces your risk. Because the rate does not change, despite fluctuations in the economy, you know your payment with certainty. When rates are near historical lows, but rising, as they are now, fixed rates are the preferred choice. You can lock in a great rate and keep it for the life your loan. Adjustable Rate Mortgages -The interest rate on ARMs may change often and substantially over time. Changes are in response to index fluctuations. The two most common mortgage indexes are: 1) the Treasury One-Year Constant maturity rate (TOYC), and 2) the 11th District (Federal Reserve) Cost of Funds Index (COFI). Since the late 1970’s, both of these indexes averaged about the same over time. They are also generally the most favorable for borrowers. But also be aware that the TOYC usually changes a little faster, with wider swings in the short term. This means the COFI is more favorable when rates are rising and less favorable when rates drop rapidly. Today, rates are rising and the COFI is the best choice for an ARM. You may also request many features: In addition to the two basic types of mortgages, you may want to consider using Mortgage Quoter for adding additional options. The most popular options for customizing your mortgage are: Wrap Around Mortgages - A wrap keeps an old fixed rate mortgage in tact, and allows a new mortgage to "wrap around" the old mortgage. With this option, the new mortgage company assumes responsibility the old loan. Borrowers then make one payment, and the new mortgage company pays both loans. The advantage of using a wrap is that an old fixed rate mortgage at a favorable low rate is not lost. Generally, the new mortgage company and borrower both benefit by splitting the savings. Line of Credit Mortgages - A line of credit creates a pre-approved mortgage loan that you may use, yet does not require you to borrow money you do not need. This way, you pay interest only on funds you receive, and know you have immediate access to additional cash without a new application. Interest Only Mortgages - just as the name implies, no principal reduction is required. Interest only mortgages are generally favorable when home appreciation is rising consistently. Short term interest only loans are very risky when home values drop. When you owe more than your home is worth, it will be extremely difficult to refinance or sell your home. Other common options are widely available:
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