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CHAPTER III -- LOAN CHOICES APLENTY

LESSON 3: TYPES OF LOANS -- FIXED-RATE MORTGAGES (FRMs)

Now that you understand how mortgages work, what varieties will you find out there? Lenders offer several types, but the most common are fixed-rate mortgages. These loans feature fixed rates and monthly payments, generally for 15-year and 30-year periods.

They're popular for two main reasons:
1) Consumers balk at the thought of their house payment rising and falling with interest rates.
2) Low rates in the late 1990s and early 2000s have made long-term fixed-rate mortgages very affordable.

Fixed-rate loan borrowers face one major choice: long-term or short-term? For some, a 30-year loan makes more sense. For others, a 15-year one does. Here are some pros and cons of each to think about. See Tips

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30-year FRM
Benefit 1. Offers borrowers the chance to borrow money on a long-term basis without having to worry about the interest rates or payments changing.
2. Monthly payments are lower than those on shorter-term loans because the interest is amortized over a longer period of time.
3. Lower monthly payments free up money that borrowers can pour into investments that yield more than their homes.
4. Higher interest bill increases the amount customers can deduct at tax time, potentially reducing or eliminating their federal income tax liability.
Drawback 1. Borrowers build equity at a very slow pace because payments during the first several years go largely toward interest rather than principal.
2. The overall interest bill is much higher because of the long amortization term.

(continued on next page)


   

TABLE OF CONTENTS

CHAPTER I
  Lesson 1
  Quiz

CHAPTER II
  Lesson 2
  Quiz

CHAPTER III
  Lesson 3
  Lesson 4
  Lesson 5
  Quiz

CHAPTER IV
  Lesson 6
  Lesson 7
  Quiz

CHAPTER V
  Lesson 8
  Lesson 9
  Quiz

CHAPTER VI
  Lesson 10
  Lesson 11
  Quiz

CHAPTER VII
  Lesson 12
  Lesson 13
  Lesson 14
  Quiz

CHAPTER VIII
  Lesson 15
  Lesson 16
  Lesson 17
  Lesson 18
  Quiz

CHAPTER IX
  Lesson 19
  Quiz

CHAPTER X
  Lesson 20
  Quiz

CHAPTER XI
  Lesson 21
  Quiz

CHAPTER XII
  Lesson 22
  Lesson 23
  Lesson 24
  Quiz

CHAPTER XIII
  Lesson 25
  Lesson 26
  Lesson 27
  Quiz

CHAPTER XIV
  Lesson 28
  Lesson 29
  Lesson 30
  Quiz

Definitions




RELATED STORIES

You take the high rate and I'll take the low rate: The 15-year vs. 30-year mortgage choice.

 
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