If you and your family are thinking of purchasing a new home soon, it is possible that you are looking through different types of ways with which your new residence can be purchased. Aside from making sure that you are getting a good deal in your new residence, which means checking whether or not major repairs are needed (especially if it is not a brand new home), purchasing a new home also means making sure that you get a good understanding of the different types of home loans and mortgages and trying to determine which loan terms and mortgages actually works best for you and your family.
Among the types of home loans available, the fixed rate home loan or the fixed rate mortgage is probably the easiest to understand. It is called a fixed rate home mortgage because it simply means that a uniform interest rate will be imposed on your loan for the entire duration of your loan term.
Whether it’s a five year terms or a thirty year loan term, you will be making fixed payments. The fixed rate home loan is ideal for those who intend to stay in their newly purchased residences for a long time. This is also good for people who find comfort in certainty. However, this comes with a price. Among all of the types of home loans, the fixed rate home loan is the one that comes with a relatively high interest rate. This is because, the homeowner, in this case, you, will not run the risk of losing out should the economy become extremely volatile and prime interest rates shoot up during your loan term.
There are different types of home loans for different types of potential homeowners. The second more popular type of home loan or mortgage is the adjustable rate mortgage. As the term implies, the interest rate for this type of home loan adjusts month after month and you will understandably end up paying different amounts in monthly amortizations. This is because the interest rate in the adjustable rate home loan will rise and fall as the average interest rates fluctuates depending on how well the economy does.
It will certainly be good for the homeowner if the interest rates fell, but it will definitely mean bad news if interest rates suddenly shoots up. Most adjustable rate mortgages start with a low fixed interest rate for a certain period of time, usually during the first seven or ten years of the loan term.
The balloon type of home loan also imposes a uniform interest rate that is lower than the fixed rate mortgages for a fixed period of time, say ten years. However as the term implies, the payments suddenly balloon after the ten year period is over. After the fixed rate term is over, the borrower is then expected to pay the loan amount in full.
It is best that you are able to understand the different types of home loans available in order to be able to choose wisely and assess which home loan will be the most convenient for you and your family.