If you’re considering buying a home,
then you may be more than a little confused by all of the terms you hear concerning
home loans. After all, lenders throw around words like fixed rate, balloon
mortgages and adjustable rate mortgages without a thought. However if you are
not at least familiar with the basics--those terms is pretty confusing!
Here's a basic guide to the three commonest
kind of home loans. Study it, and
determine which one is right for you.
Fixed Rate Home Loan
If you’re thinking about buying a
home and staying in it until you pay it off, then you’ll most like desire a
fixed rate home loan. With this kind of loan, you’ll be assigned a fixed
interest rate, and so that rate won’t change for the lifetime of the loan. If
interest rates skyrocket, yours will remain the same. On the other hand, if
they plummet, you’ll probably be paying a higher rate. (You can always
refinance in order to get a lower rate.)
Adjustable Rate Mortgage (ARM)
The rate of interest with this kind
of loan goes up and down with the market. In alternative words, if the rate of interest
is low, the rate on your home mortgage will be low, however if it's high, your
loan rate of interest will reflect it. And because the rate interest on a home
mortgage loan affects the payments, you will never know from reporting period
to reporting period what your monthly mortgage payments will be. This kind of
loan obviously isn't for everybody.
So, who may use an ARM? For
starters, if you’re getting a house for investment purposes and plan to sell it
quickly, you might take advantage of low interest rates by getting this type of
loan--particularly if it looks as if they may go lower. Another reason to use
an ARM as a home loan is if you are buying a home in a time when interest rates
are on the decline. You can take out an ARM, and then change it to a fixed loan
once the interest rates bottom out.
Balloon Mortgage
With this kind of loan, you will
make monthly payments for a fixed amount of time, with a fixed interest rate.
The difference is that at the end of the payment schedule, you will owe the
unpaid balance in one payment. If you use a balloon mortgage, you will find
that the interest rates are much lower than either a fixed rate mortgage or an
ARM.
The obvious negative to this type of
loan is that huge payment due at the top, however if you’re planning to hold
the house for a brief amount of time, then this could be the loan for you.
By understanding the varied sort of home
loans that are available to you, you will be higher ready to form a call that’s
excellent for you and your family.
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