Home loans

Purchasing a home is a large decisions and one that should be taken into careful consideration. There are a number of different options that are available to those looking to purchase a home. There are also a number of loan options available if you already own a home. The types of loans that are most widely sought after are Fixed Rate, Adjustable rate, and interest only. There are also home equity loans.

Fixed Rate Mortgages or home loans

Fixed rate home loans are just as they sound. They are mortgages that maintain a fixed rate of interest for the entire life of the loan, whether it is a 15-year, a 30 year or more. You can find home loans in just about any life length but the 15 and 30-year home loans are more commonly seen. There are some advantages to fixed rate home loans.

Advantages of Fixed rate home loans

1. Fixed rate home loans if they are taken out when the interest rates are low can save you thousands of dollars over the life of your loan. This means that you can maintain a low interest rate even if the interest rates in the markets skyrocket.
2. If you are on a fixed income or if you are someone who carefully budgets for every expense, having a fixed rate home loan can make sure your payments are the same every single month. This makes budgeting easy since you will always know exactly what your payment will be every single month.

Disadvantage of a fixed rate home loan

The disadvantage of this type of loan is the fact that if the interest rate drops below the amount you have locked in then you end up paying more than the current market. It is possible however to refinance your fixed rate home loan into the lower interest rate. This would however, extend the life of your loan again for another 15 to 30 years.

Adjustable rate home loans

Adjustable rate home loans are loans that have a very low fixed rate for the first few years before they begin to follow the market. This means that every time the interest rate changes, your interest rate on your home mortgage changes and so does your payment. There is a variety of ways that the interest rate can change your payment this can be quarterly, monthly, semi annually or annually depending on the loan agreement. This means that you can have a home loan payment that changes every month based on the interest rate. For some, this may be an ideal solution others may find it difficult to budget.

Advantages of Adjustable Rate Home Loans

1. Adjustable rate home loans come with a very low introductory interest rate. This is usually a fraction of the market rate. The rate remains fixed for several years. This means that your monthly payments for the first few years will be lower than on a fixed rate home loan.
2. As the market drops, you can take advantage of lower interest rates instantly.

Disadvantages of Adjustable rate home loans

The biggest disadvantage of an adjustable rate home loan is the fact that it is an adjustable rate. This means that if there is a steady increase in the interest rate, there is a steady increase in monthly payments. It makes it very difficult to accurately budget. An adjustable rate home loan is not for everyone one so take the possible increases or decreases in the payments into consideration and make sure, that you can pay the maximum amount that may be possible under the market based on previous data. This way means that you also have to keep track of the interest rates so you can plan for future months.

Interest Only Home Loans

Interest only home loans are usually shorter-term loans like 10-15 years. They are designed so that for the first few years only the interest on the principle is paid on the loan. This results in extremely low payments however, once those years are over the payments can be significantly higher than would be paid with other types of home loans.

Advantages of an Interest Only Home loan

1. An interest only home loan can provide a low interest rate and payments, which have you pay only the interest for the number of years laid out in the loan agreement.
2. These loans are usually shorter-term loans. They are not normally 30-year home loans.

Disadvantages of an Interest Only Home Loan

The disadvantages of an interest only home loan lie in what happens after the interest only term ends. Once the interest only term ends, it means that the principle needs to start being paid. Because the loan has already been active, and you have taken several years off the life of an already shorter-term loan you have less time to pay back the principle. This means that it can be expensive. The monthly payments can be very high and that can be a financial shock to some people.

Home Equity Loans

Home equity loans are another loan you can take out on your home that has a variety of different uses. If you have had your home for a while, it probably has equity. Equity is the difference between the market value and the amount left to pay on the home loan that was originally taken out on the home. This is the value that determines what the amount you are capable of borrowing is. In a market that is, appreciating this could mean if you started out with a $150,000 home loan, which was at the time the value of your home. It is now worth $250,000 and you have paid off $50,000 of your loan that means you can borrow up to $150,000 since the value of your home minus what you have left to pay on your home is $150,000.

There are two ways to get a home equity loans. The first is to lump sum the amount that you want. The amount is added to your existing home loan and you pay both off at the same time. This is great for extra large expenses like needing a new car, large medical expenses or even debt consolidation. The other way to receive a home equity loan is similar to a line of credit you get from the bank or a credit card. You can borrow against it a little at a time for smaller expenses that you need. Pay it off and then borrow against it again.

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