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Know Your Loan Options before Applying
Home Finance Loans / Lease
By: Adam Heist Email Article
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All loan options are not the same; there are huge differences in them with respect to the options they provide. Sometimes with all these features it becomes very difficult to choose the loan option that could be ideal for you. In order to make the process of deciding which loan to take, let us first know what the different types of loans are.

1. Fixed Rate Mortgage Loans

These are the most popular types of loans available. With these loans, the mortgage rates are fixed throughout the life of the loan. Even within fixed mortgage loans, there are different kinds according to their tenures:-

a) 30-year Fixed Rate Loans: These loans are preferred by people who wish to stay in their houses for longer periods of time. Since the repayment is spread over to a period of thirty years, the amount paid back each month is low, which allows the family to have some liquidity in hand. However, the borrower will end up paying more in the long run because of the more interest paid.

b) 15-year Fixed Rate Loans: The shorter period makes it possible for the house to become the borrower’s sooner, but he/she would have to make much higher monthly payments. The interest rate would also be half of that on the 30-year loan.

c) Biweekly Loans: With these loans, the payments are to be made every fortnight instead of every month. They are generally given on 30-year loans. Due to the excess payments made, the loans get over in something like 23 years. Also the loan builds up the equity faster. But some people might find the frequency of the payments too much to keep up with.

2. Adjustable Rate Mortgage Loans

With adjustable rate mortgage loans, the rates of interest are subjected to ups and downs as per mortgage trends. Generally these loans begin with lower rates of interest, and they could build up over time. The advantage with these loans is that the rates of interest in the beginning could be lower since the borrower would lock in a low rate of interest. But the rates could go higher at any time and then the borrower would have to make highly monthly payments.

There are some other aspects to home loans that must be known well in advance. Let us see these options.

1. Hybrid and Convertible ARM – These loans provide the borrower with the ability to switch from a fixed rate of interest to an adjustable rate, or from an adjustable rate of interest to a fixed rate. Hence the loans become flexible. Naturally it makes sense to convert with these loans only if the rates are lower than with the option you are currently using.

2. Interest Only Loans – In these loans, the borrower is supposed to make only the payments on the interest month after month, but will have to pay lump sums on the principal periodically. Interest only loans are those for people who work with lower salaries but get huge bonuses at the end of the year. This makes it possible for the borrower to get higher loans and keep more money in his/her pocket for all year round. But the disadvantage is that these loans do not make any payments on the home all through the year.

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