Mortgage 101
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Applying For A Mortgage
The following documents are typically needed : Last 3 months bank statements| Last month paystubs| Information on any current loan
Adjustable Rate Mortgages (ARM)
These loans generally begin with an interest
rate that is 2-3 percent below a comparable fixed rate mortgage,
and could allow you to buy a more expensive home.
However, the interest rate changes at specified intervals (for example,
every year) depending on changing market conditions; if interest
rates go up, your monthly mortgage payment will go up, too. However,
if rates go down, your mortgage payment will drop also.
There are also mortgages that combine aspects of fixed and adjustable
rate mortgages - starting at a low fixed-rate for seven to ten years,
for example, then adjusting to market conditions. Ask your mortgage
professional about these and other special kinds of mortgages that
fit your specific financial situation 
Fixed Rate Mortgages
The most common type of mortgage program where
your monthly payments for interest and principal never change. Property
taxes and homeowners insurance may increase, but generally your monthly
payments will be very stable.
Fixed-rate mortgages are available for 30 years, 20 years, 15 years
and even 10 years. There are also "bi-weekly" mortgages,
which shorten the loan by calling for half the monthly payment every
two weeks. (Since there are 52 weeks in a year, you make 26 payments,
or 13 "months" worth, every year.)
Fixed rate fully amortizing loans have two distinct features. First,
the interest rate remains fixed for the life of the loan. Secondly,
the payments remain level for the life of the loan and are structured
to repay the loan at the end of the loan term. The most common fixed
rate loans are 15 year and 30 year mortgages.
During the early amortization period, a large percentage of the monthly
payment is used for paying the interest . As the loan is paid down,
more of the monthly payment is applied to principal . A typical 30
year fixed rate mortgage takes 22.5 years of level payments to pay
half of the original loan amount.
Standard ARMS and the Differences
A few options are available to fit your individual
needs and your risk tolerance with the various market instruments.
ARMs with different indexes are available for both purchases and refinances.
Choosing an ARM with an index that reacts quickly lets you take full
advantage of falling interest rates. An index that lags behind the
market lets you take advantage of lower rates after market rates have
started to adjust upward.
The interest rate and monthly payment can change based on adjustments
to the index rate.
6-Month Certificate of Deposit (CD) ARM
Has a maximum interest rate adjustment of 1% every six months. The
6-month Certificate of Deposit (CD) index is generally considered
to react quickly to changes in the market.
1-Year Treasury Spot ARM
Has a maximum interest rate adjustment of 2% every 12 months. The
1-Year Treasury Spot index generally reacts more slowly than the CD
index, but more quickly than the Treasury Average index.
6-Month Treasury Average ARM
Has a maximum interest rate adjustment of 1% every six months. The
Treasury Average index generally reacts more slowly in fluctuating
markets so adjustments in the ARM interest rate will lag behind some
other market indicators.
12-Month Treasury Average ARM
Has a maximum interest rate adjustment of 2% every 12 months. The
treasury Average index generally reacts more slowly in fluctuating
markets so adjustments in the ARM interest rate will lag behind some
other market indicators.
