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Home Mortgage Loan Information - Which Type Of Home Loan Is Best For You?
By: Carrie Reeder
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 lower rate.)
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 everyone.
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.
Balloon Mortgage
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.
About the Author:
To see a list of recommended mortgage loan companies online, visit this page:
http://www.abcloanguide.com/mortgageloans.shtml - Carrie Reeder is the owner of
ABC Loan Guide, an informational website with articles and more about various
types of loans. |
