The Different Types Of Home Mortgage Loan

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.

First is the fixed rate loan and with this, you will have a fixed interest rate and that will not change for the life of the loan. So if you plan to buy a home and stay in it until you pay it off, then this would be the loan for you. Just take note that if interest rates go higher, yours will just stay the same. But just hope that they will not go down as you will be paying a higher interest rate.

The second type is the adjustable rate mortgage or the ARM. This loan's interest rate basically goes up and down with the market so if the interest rate is low, so will yours; and if high, your home mortgage rate will, too. One disadvantage of this type is that the interest rate on a home mortgage loan affects the payments so you will never know what your monthly mortgage payments will be so this type won't be right for everyone.

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.

Just one big problem for this type of loan is the large payment due at the end. On the other hand, if you plan to hold the house for just a short period of time, the balloon home loan might just suit you well.

When you get to really understand the types of home loans then you will be more confident and prepared to make the right decision in getting the best home mortgage loan for you and your family.