Different Types of Home Loans & Interest Rates
The need for borrowing money to purchase a home varies between borrowers. Because of that, financial institutions offer a variety of mortgages to meet the specific needs of the potential homebuyer, or those interested in refinancing their existing loan. Traditionally, the most common forms of a home loan involve a fixed rate mortgage and/or an adjustable rate mortgage. However, there are others.
Below is a sampling of the most widely used loan types available to homebuyers and potential homebuyers. They include:
Fixed Rate Mortgage – Probably the most dependable and secure loan available in the real estate market is a fixed rate mortgage. This is because the amount of the monthly payment remains at a fixed interest rate for the entire term of the loan whether it is based on 10 years, 15 years, 20 years, 30 years or other. There is no prepayment penalty and it allows the homeowner to build equity quickly.
FHA Fixed Rate Loan – This type of fixed interest rate loan for purchasing real estate is offered by the federal government. While the government does not actually offer the loan, they guarantee or insure the loan through a lending institution. An FHA fixed interest rate loan is extremely valuable to most homebuyers, and offers an easy solution over obtaining a conventional loan.
Fixed Interest Rate Interest Only Loan – An interest-only rate offers a pre-set monthly rate in an amount that covers just the interest involved. Every payment covers only the interest and never pays down any part of the principal amount. However, this interest-only payment is usually substantially less than a traditional fixed rate mortgage. This type of loan offers a short-term solution for many borrowers that know their income will likely increase substantially in the next few years, such as a doctor just beginning his or her practice.
Adjustable Rate Mortgage – This type of loan provides a valuable solution for homeowners that require more monthly cash. However, the amount of monthly payment will usually increase every year, based on an rising interest rate, and could increase to an amount higher than what could be affordable to the homeowner. Many lenders blend adjustable rate mortgages with fixed rate loans is an easy solution for purchasing a home.
These common home loans offer affordable solutions for every type of potential homebuyer including those purchasing a house for the first time. Lending institutions offer a variety of loans at varying interest rates to meet the needs of their customers.
Fixed Rate Mortgage – Probably the most dependable and secure loan available in the real estate market is a fixed rate mortgage. This is because the amount of the monthly payment remains at a fixed interest rate for the entire term of the loan whether it is based on 10 years, 15 years, 20 years, 30 years or other. There is no prepayment penalty and it allows the homeowner to build equity quickly.
FHA Fixed Rate Loan – This type of fixed interest rate loan for purchasing real estate is offered by the federal government. While the government does not actually offer the loan, they guarantee or insure the loan through a lending institution. An FHA fixed interest rate loan is extremely valuable to most homebuyers, and offers an easy solution over obtaining a conventional loan.
Fixed Interest Rate Interest Only Loan – An interest-only rate offers a pre-set monthly rate in an amount that covers just the interest involved. Every payment covers only the interest and never pays down any part of the principal amount. However, this interest-only payment is usually substantially less than a traditional fixed rate mortgage. This type of loan offers a short-term solution for many borrowers that know their income will likely increase substantially in the next few years, such as a doctor just beginning his or her practice.
Adjustable Rate Mortgage – This type of loan provides a valuable solution for homeowners that require more monthly cash. However, the amount of monthly payment will usually increase every year, based on an rising interest rate, and could increase to an amount higher than what could be affordable to the homeowner. Many lenders blend adjustable rate mortgages with fixed rate loans is an easy solution for purchasing a home.
These common home loans offer affordable solutions for every type of potential homebuyer including those purchasing a house for the first time. Lending institutions offer a variety of loans at varying interest rates to meet the needs of their customers.