If you are considering buying a home, you may be more than a little confused by all the terms you hear about home loans. After all, lenders throw words like fixed-rate, balloon mortgages, and adjustable-rate mortgages without thinking. But if you are at least not familiar with the basics, those terms can be quite confusing!
Here is a basic guide to the three most common types of home loans. Study it and determine which one is right for you.
Fixed rate home loan
If you're thinking of buying a home and staying in it until you pay for it, you probably want a fixed-rate home loan. With this type of loan, you will be assigned a fixed interest rate and then that rate will not change for the life of the loan. If interest rates skyrocket, yours will stay the same. On the other hand, if they plummet, you are likely to pay a higher rate. (You can always refinance for a lower rate.) You can also find the best home mortgage loans and refinance lenders in Elk Grove, CA, through online sites.
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Adjustable rate mortgage (ARM)
The interest rate on this type of loan goes up and down with the market. In other words, if the interest rate is low, your home mortgage rate will be low, but if it is high, the interest rate on your loan will reflect it. And because the interest rate on a home mortgage affects payments, you will never know, from one reporting period to the next, what your monthly mortgage payments will be. This type of loan is obviously not for everyone.
Another reason to use an ARM as a home loan is if you are buying a home at a time when interest rates are dropping. You can take out an ARM and then switch it to a fixed loan once interest rates bottom out.