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Understand your mortgage loan options

When you look into purchasing a home, one of the things you need to decide on is the kind of mortgage you want. There are several options, and depending on your situation, one could be better than another.

The first thing to learn about are common kinds of mortgages such as fixed-rate mortgages and variable-rate mortgages. Fixed-rate mortgages typically come with lower interest but higher monthly payments when they're set for a shorter time span. Longer loans have lower monthly payments with more interest, in most cases.

Variable-rate mortgages, on the other hand, have interest rates that change. The changes reflect current interest rates, which could be good or bad for you, depending on the economy and lending practices.

Interestingly, the initial rate you have tends to be low and is called a "teaser," since it's likely to rise over time. The benefit is that the initial interest rate is lower than with fixed-rate loans in typical cases.

How do you know which mortgage is right for you?

It really depends on what you qualify and your intentions with the property. For a short-term loan, you may get a good rate with a fixed mortgage, which would allow you to know exactly what you'll pay back over time.

With a longer loan, variable rates would start you off lower, giving you more money to work with and lower interest rates initially. Over time, they'd increase, but it's possible that you'd be able to put down more money during the times with lower interest rates to bring down the cost of the property overall and offset any rise in interest rates.

Consider your situation carefully and be sure to fully review all of the terms related to your mortgage. Getting a professional review of the mortgage documents may also be in your best interests, especially if you aren't comfortable reading these dense legal documents.

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