If you are considering buying a home, then you may be a little confused by all of the terms you hear about home loans. After all, lenders just throw around words like fixed rate, balloon mortgages and adjustable rate mortgages without a thought. What follows are the three most common types of home loans. Study it, and determine which one would be right for you.
You will want a fixed rate loan when you are planning to buy a home and stay in it until you pay it off. With this type, you will be given an interest rate that is fixed and will not change for the life of the loan. Now, if interest rates go higher, yours will remain the same however, when interest rates go lower, you are to pay a higher rate.
The second type of loan is the adjustable rate mortgage or ARM wherein its interest rate goes along with the market. So when the interest rate goes low, your home mortgage rate goes low as well and if high, then your rate goes high too. Since the rate on a home mortgage loan affects your payments, you will not have any idea how much you will be paying for your monthly mortgage.
This type of loan would be more preferred by those individuals who buy a house for investment purposes then plan to sell it fast as they can probably use the low interest rates, especially if they may get 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 have it changed to a fixed loan once the interest rates bottom out.
The third type is the Balloon Home Loan. With this type, 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 likely owe the unpaid balance in one lump sum. So 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 disadvantage to this type of loan is the huge payment due at the end, but if you are planning to hold the house for a short period of time, then this might be the right loan for you.
It is essential to know and understand the different types of home loans so as to be more prepared when the time comes for you to decide which home mortgage loan would be more beneficial to you and your family.
You will want a fixed rate loan when you are planning to buy a home and stay in it until you pay it off. With this type, you will be given an interest rate that is fixed and will not change for the life of the loan. Now, if interest rates go higher, yours will remain the same however, when interest rates go lower, you are to pay a higher rate.
The second type of loan is the adjustable rate mortgage or ARM wherein its interest rate goes along with the market. So when the interest rate goes low, your home mortgage rate goes low as well and if high, then your rate goes high too. Since the rate on a home mortgage loan affects your payments, you will not have any idea how much you will be paying for your monthly mortgage.
This type of loan would be more preferred by those individuals who buy a house for investment purposes then plan to sell it fast as they can probably use the low interest rates, especially if they may get 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 have it changed to a fixed loan once the interest rates bottom out.
The third type is the Balloon Home Loan. With this type, 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 likely owe the unpaid balance in one lump sum. So 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 disadvantage to this type of loan is the huge payment due at the end, but if you are planning to hold the house for a short period of time, then this might be the right loan for you.
It is essential to know and understand the different types of home loans so as to be more prepared when the time comes for you to decide which home mortgage loan would be more beneficial to you and your family.
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