There are many, many different types of mortgages. We will cover the some of the most common types here. In this part we will cover the two most common types of mortgages which are fixed rate and adjustable rate (ARM). With a fixed rate mortgage your interest rate is set before closing on your home and does not change for the entire term of the loan. If you are pre-approved of closing, many banks will give you the opportunity to lock in the interest rate 2 – 3 months prior to closing. Sometimes you might even be able to lock further in advance for a fee, which is usually some percentage of a point. A point is equal to 1% of the loan amount. By locking early for a fee may be advantageous if rates are low and expected to rise.With an Adjustable Rate Mortgage the interest rate will change throughout the term of the loan. How often the rate changes depends upon the adjustment period of the loan. PMI is insurance that you are forced to take out by the bank if you are putting down less than a certain percentage (usually 20%) of the total purchase price. This insurance protects the bank from losses in case you stop making your payments.
The bank has to drop the PMI once you have built up more than 22% in equity. You have to stay on top of this and make sure they drop it when they are supposed to because if your property appreciates you effectively have more equity in your home. If this happens you should ask your lender if they will drop the PMI requirement based on the new value. In order for them to drop the PMI they will most likely require an appraisal which will cost you around $250 to get. When financing your home mortgage it really depends on you.