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.
