Home Mortgage Loan Information - Which Type of Home Loan is
Best For You?
If you are considering buying a home, then you may be more
than a little confused by all of the terms you hear about home
loans. After all, lenders throw around words like fixed rate,
balloon mortgages and adjustable rate mortgages without a
thought. But if you aren't at least familiar with the
basics-those terms can be pretty confusing!
Here's a basic guide to the three most common types of home
loans. Study it, and determine which one is right for you.
Fixed Rate Home Loan
If you are thinking about buying a home and staying in it
until you pay it off, then you will probably want a fixed rate
home loan. With this type of loan, you will be assigned a fixed
interest rate, and then that rate will not change for the life of
the loan. If interest rates skyrocket, yours will remain the
same. On the other hand, if they plummet, you will likely be
paying a higher rate. (You can always refinance in order to get a
Adjustable Rate Mortgage (ARM)
The interest rate with this type of loan goes up and down with
the market. In other words, if the interest rate is low, the rate
on your home mortgage will be low, but if it's high, your loan
interest rate will reflect it. And because the interest rate 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 type of loan obviously isn't for
So, who might use an ARM? For starters, if you are purchasing
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.
With this type 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 lump sum. 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 end, but if you are planning to hold the house for a
short period of time, then this might be the loan for you.
By understanding the various types of home loans that are
available to you, you will be better prepared to make a decision
that is just right for you and your family.
To view our recommended sources for home mortgage loans,
Home Mortgage Lenders Online.
Carrie Reeder is the owner of ABC Loan Guide, an
informational website with articles and the latest news about
various types of loans.
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