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Taking the Fear Out of Mortgage Rates

Fear #1

Q. I am scared of those ARMs and their fluctuating rates. I know that they are cheaper than a fixed mortgage, but ... Should I be more brave and go for an ARM?

A. Not necessarily. If security is important to you, then shop for the best fixed-rate mortgage out there. Pay attention to the interest rates and how they are fluctuating, and be sure to get your lender to lock-in, or guarantee the interest rate if the loan is closed within a specific time.


Fear #2

Q. Eek! My lender says I have to pay Private Mortgage Insurance on my mortgage. How much is it going to be anyway?

A. Does your lender wear a helmet when he skis? It's the same thing, he wants to protect himself in case you default on your loan. You can expect to pay 1-5 percent of the total mortgage with the initial premium, and possibly a monthly fee on top of that. Be sure to ask that cautious lender why he is requiring PMI.


Fear #3

Q. I'm a coward and I know it. My lender showed me an amortization schedule that scared me to death. Almost everything I pay at the beginning of my loan goes to the bank. What's up?

A. Looking at an amortization schedule can make the best of us squirm, but there's no way to avoid the truth: Your loan payments are spread evenly over a period of time (amortized), and the interest takes up a bigger chunk of the payment at the beginning. Things look up toward the end of the life of the loan: Your payments go mainly toward the principal then.

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