Buyers of Dundee homes for sale may find it hard to choose what type of mortgage loan to get, especially if it's their first time to purchase their own property. If you're one of these people, you should know the fundamentals of the two basic type of mortgage: the fixed rate and the adjustable rate. The best one for you would depend on your own situation so it's important to carefully consider every factor involved.

Fixed Rate Mortgage

With this loan type, the principal and interest payment every month doesn't change for the length of the loan. Even though property taxes and the homeowner's insurance may adjust, fixed rate loan payments generally remain stable.

There are available options borrowers can choose in fixed rate mortgage loans; one may choose to pay for ten years, 15 years, 20 years, 30 years, 40 years, or 50 years. Another option is the biweekly mortgage wherein borrowers pay every two weeks in one month, adding up to 26 weeks in a year. This way, there's an extra monthly payment made each year that decreases the life of the loan and can save you a huge amount of interest.

In a fixed rate loan, a large portion of the payment made each month goes to the interest and only a small percentage to the principal early on the amortization period. This slowly reverses as the loan gets older and as extra principal payments are applied yearly.

Adjustable Rate Mortgage (ARM)

Adjustable rate mortgages generally establish what needs to be paid on the basis of an outside index like the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), the one-year Treasury Security rate, the six-month Certificate of Deposit (CD), or others. These might change every six months or every year.

Most ARMs have rate caps that protect borrowers from the monthly payments rising too much at a time. There's a cap that limits the increase of interest rates; for example, not exceeding two percent every year. There may also be a payment cap that directly limits the growth of monthly payments instead of limiting the interest rate. Furthermore, almost all of these mortgages have lifetime caps, meaning the interest rate cannot go beyond a certain amount, in any case.

These mortgages usually have their lowest and most appealing rates at the start of the loan. That amount is secured for a certain period of time and then just changes according to a yearly index after that for the remaining life of the loan. There are risks of rate increases with ARMs, but there are also advantages when the rates go down.

Before deciding on what type of mortgage loan you'll go for, it's advisable to consider all your options when buying a home in Dundee real estate. Make sure you discuss these matters with your agent and ask for his/her assistance.