The Different Types Of Home Mortgage Loan

May

6th

Author: John Bear | Files under Loans

by John Bear

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.

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 balloon home loan is the third type of loan and with this type, for a fixed amount of time with a fixed interest rate, you will do monthly payments. But in this type, you are to owe an unpaid balance in one lump of sum at the end of the payment schedule. So interest rates in this type of loan are much lower than the other two previous types.

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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