Do the words fixed rate, balloon loan, and adjustable rate mortgages mean anything to you? If they don't and you are planning to buy a home, then you have to go through a quick terminology lesson. Those previously mentioned words happened to be the three most common types of home loans, so let's discuss each one of them so as to choose the best mortgage deal.
The first type of loan is the Fixed Rate Loan. If you are planning to buy a home and stay 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 that rate will not change for the life of the loan. If interest rates do skyrocket, yours will remain the same. On the other hand, if they plummet, you will be paying 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.
To make good use of an ARM loan, individuals usually plan to sell a house quickly that they purchased for investment purposes so they may take advantage of the low interest rates especially if it looks as they may go lower.
An ARM loan would prove to be beneficial when you buy a home on a time when the interest rates are very low. You can take an ARM and have it changed later to a fixed loan when the interest rates go lower.
The third type would make you pay monthly for a fixed amount of time with a fixed interest rate; this is called the balloon home mortgage loan. At the end of the payment schedule, you will owe the unpaid balance in a single lump sum. The interest rates in this type are much lower than the fixed rate and the ARM.
The only drawback of a balloon loan is at the end, you have to make a huge payment but if you plan to keep the house for only a short period, this can just be the right 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 on choosing a home mortgage loan that is just perfect for you and your family.
The first type of loan is the Fixed Rate Loan. If you are planning to buy a home and stay 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 that rate will not change for the life of the loan. If interest rates do skyrocket, yours will remain the same. On the other hand, if they plummet, you will be paying 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.
To make good use of an ARM loan, individuals usually plan to sell a house quickly that they purchased for investment purposes so they may take advantage of the low interest rates especially if it looks as they may go lower.
An ARM loan would prove to be beneficial when you buy a home on a time when the interest rates are very low. You can take an ARM and have it changed later to a fixed loan when the interest rates go lower.
The third type would make you pay monthly for a fixed amount of time with a fixed interest rate; this is called the balloon home mortgage loan. At the end of the payment schedule, you will owe the unpaid balance in a single lump sum. The interest rates in this type are much lower than the fixed rate and the ARM.
The only drawback of a balloon loan is at the end, you have to make a huge payment but if you plan to keep the house for only a short period, this can just be the right 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 on choosing a home mortgage loan that is just perfect for you and your family.
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