Home Loan Interest Rate
Provided By:
www.freerealestatecourse.org
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The primary choice for you as you negotiate the jungle of home loans is whether to use a fixed home loan interest rate or an adjustable rate mortgage. Your needs and circumstances will dictate which is the loan for you.
Fixed-Rate Mortgage
A fixed-rate mortgage has a fixed interest rate for the life of the loan, and the debt is amortized, or paid in equal monthly installments, for the entire loan period, which can range from 15-30 years.
Advantages include the benefit of a fixed rate, even if market rates rise, and you always know exactly how much your repayment will be over time
This type of a loan is suitable for someone who is too busy to track the performance of market interest rates and does not want to worry about refinancing every couple years or so.
A fixed-rate mortgage is also a sound choice for people with a fixed income, who cannot withstand sudden changes in their monthly repayments. Your payment will never change, until the mortgage is paid off. Many fixed-rate loans have no prepayment penalty, giving you the flexibility to pay as much more as you want, and finish the loan early, but also know that your minimum payment will never change.
Adjustable Rate Mortgage
With an adjustable-rate mortgage, lenders increase or decrease the interest rate as the market changes, meaning that your monthly payments may go up or down.
Advantages include an initial home loan interest rate that is usually lower than a fixed-rate loan, and it is usually easier to qualify. Lenders prefer this type of loan, because it is easier to maintain profitability over time, because they can keep the revenue closer to the cost as market rates change.
An adjustable rate mortgage is suitable for people who have access to alternative capital, or assets that would be easy to liquidate. Cash-flow management skills are important with this sort of loan. Also, if you are expecting a windfall profit, this could be a good loan for you, if you could drastically reduce your principal.
Adjustable-rate mortgages are also generally approved for higher amounts. If you expect a promotion, or a raise, then this type of mortgage rate could be suitable for you. If the interest rates decline, your monthly payments decrease, which would help you pay off principal faster, or save for future rate increases.
It is important to be fully aware of the benefits and drawbacks of each type of home loan, so you can select the type that is best for you.
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