Finding the Right Mortgage Loan
There are several types of mortgage offerings that are available to Rhode Islanders. Picking the right loan is just as important as picking the right home. You will receive professional consultation as to which loan products would work best for you, but FYI, here are the basics of some of the loans you might come across:
Fixed Rate Mortgages: Fixed rate mortgages have their interest rates set at the time that the loan is made. This rate does not change over the life of the loan (usually 15 or 30 years), despite market influences or other facts. The benefit to this kind of loan is that you will always have the same basic loan payment amount and the only things you have to worry about changing are your property taxes and insurance.
Adjustable Rate Mortgages (ARMs): Adjustable rate mortgage loans are different from fixed-rate loans in that their rates can change over time due to market and other factors. Usually ARMs begin with a fixed rate that will last for a period of years and this initial rate is often substantially lower than the rate offered for fixed-rate loans. After the initial period ends for an ARM, the rate can adjust upward or downward on a regular basis, which will raise or lower your mortgage payment amount without reducing the total life of the loan. The primary benefit of this type of loan is that it allows homeowners to buy more home than they could otherwise afford due to the lower interest rate initially. Good if you expect a significant salary increase in the future.
80/20 Mortgage: 80/20 mortgages, also called "split mortgages" are loans for a single property that are financed by two different institutions. This type of loan is most useful and used by those whose credit is not high enough to convince a lender to take on the full-risk of a mortgage. Alternatively, such persons may turn to one lender to only finance 80% of the loan, and find another lender willing to put forward the remaining 20%. This "split mortgage" will have the effect of giving you two mortgage payments to make, but for the same total amount.
Read more about understanding mortgage loans in Rhode Island.
