There are different types of Home Mortgage Loans. If you are looking out to buy a house, for the first time, you may not be in the know of things about Home Mortgage. The whole thing in respect of a home mortgage will be somewhat confusing and you may not be able to understand it fully. In fact, there are Fixed Rate loan, Adjustable Rate loan and Balloon payment loans. When such is the case, naturally, you will find it difficult to arrive at a decision regarding the type of loan you should go in for.
What does a Fixed Rate Mortgage mean?
As the very name suggests, for this loan, rate of interest is fixed for the entire period of the loan. The rate will not change and you will have to pay the same rate month after month. In a way, this is advantageous to you because you will not be paying more than what is fixed even if there is any increase in the rate of interest, at a later date. In case of any decline in the interest rate, you will be allowed to ‘refinance’ the bad credit personal loans at a lower rate of interest. In view of this beneficial option for the borrower, the interest rate is slightly higher than for other types of loan.
Features of the Adjustable Rate Mortgage
Under this loan, based on the current market rates, interest will vary and, accordingly, the monthly payments will vary too! There is a connection between the interest and the index; the lender decides on the rate of interest based on the index. The rest of the terms, too, are determined by the lender. On quite a few occasions, the interest rate is adjusted, upwards or downwards. Whatever be the case, it is only the lender who decides on such matters. Sometimes, lenders will come out with ‘special’ offers but only for a short period. Subsequently they will increase the rate.
What is Balloon Mortgage?
As far as this type is concerned, interest rate will be a fixed one and consequently the monthly payments will remain the same. This will be there only for some time. After this date, the entire loan becomes due. Hence this type is called ‘balloon mortgage.’ In actual practice, while this ‘balloon’ system is in operation, your monthly payments are fixed and there will be no change, for a considerable length of time. Afterwards, you will come under the ‘adjustable rate mortgage’ umbrella.
First you take the trouble of comparing and analyzing all the three types. In the fixed rate mortgage, you know how much you will have to pay every month; so you will not be dealt a blow unexpectedly. As regards adjustable rate mortgage is concerned, it is worth considering this option, provided you have regular salary income with prospects of getting increase after some time. This should be opted especially if there is a possibility of a decline in the interest rate. Balloon mortgage can be opted if the rates of interest are attractive and also there is now way for you to opt for other types. You consider the pros and cons and take a decision in the matter.