Thirty-year fixed rate loans are what most people think of when they
hear the word "mortgage." Fixed rate loans are also referred to as
"fully-amortized" loans. One of the aspects that buyers like about fixed
rate loans is that the payments stay the same for the life of the loan.
Generally, these loans are offered in a 15- or 30-year duration.
A 30-year loan will provide larger tax deductions, as you will be
paying more interest than principal during the first 23 years of the
loan. A 15-year loan, on the other hand, is paid off twice as quickly
and usually has a lower interest rate. You build more equity because
your payments pay more principal. As mentioned earlier, you (or the
seller) also can "buy down" your loan by paying more tax-deductible
points up front, to lower your fixed interest rate.
Balloon Loan A fixed loan that is amortized over
a 30-year period but becomes due and payable at the end of a shorter
term (i.e., 5, 6, 7 or 10 years). Some of these loans have an option to
be extended with a new rate or rolled into another type of loan.
Usually, the rates of these loans are lower than those for a regular
30-year fixed rate loan, but they are not recommended if you plan to
stay in the home for a longer period of time.
Graduated Payment Mortgage (GPM) A fixed-rate
loan that has payments starting lower than the payments on a standard
fixed rate loan, which increase by a predetermined amount each year for a
specific number of years, usually five years.
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