Mortgages - Which Loan is Right For You
By Joseph Kenny
When buying a home, you need to take a home mortgage loan, either because as a debtor, you end up paying less tax, or because in a market where property prices rise faster than salary levels, the money you have saved falls short of the amount required. When searching for a home mortgage loan, you can select from a wide variety. Study the types of mortgage loans available in the market and note the interest rates for each before you sign any documents. You can select from the following:
Fixed rate mortgage loans charge you the same rate of interest over a period of 15 to 30 years. You pay a high rate of interest over the tenure of the loan, because neither you nor the lender can take advantage of interest rate fluctuations, but you pay the same sum each month. This is an excellent option if you are on a fixed income or a salary. You begin by paying off the interest first and the principal later-as most of the loan is paid off, your equity in the house increases as compared to the lenders. When selecting a fixed rate mortgage, check the interest rates offered for fixed rate mortgages, select the loan tenure based on your repayment capacity, and ensure that you are not penalized for prepaying your loan.
Adjustable or variable rate mortgage loans (ARMs) are mortgage loans for the same period of time as fixed rate mortgages, where the interest rate changes based on market trends either annually, or every three, five, seven, or ten years. Although ARMs are considered risky due to the floating interest rate, the amount you pay as interest on the mortgage loan is lower as compared to that paid for a fixed rate mortgage loan. If you select an ARM when interest rates are high, you will pay off your loan with a slightly lower interest rate. Ensure that a periodic rate cap and a loan lifetime rate cap is included as part of the loan agreement-these will ensure that your rate does not rise or fall more than two percentage points in a period and does not rise or fall more than six percentage points during the mortgage loan tenure.
Balloon mortgage loans have three to ten year tenures, during which you pay the same amount each month. At the end of the loan tenure, you pay off the balance of the mortgage loan as one lump sum. Balloon mortgage loans are available at fixed or adjustable rates, but are considered highly risky because you end up paying off the interest on the mortgage loan and not the principal, and you stand to lose both the property and the money paid to date to the owner if you cannot pay off the loan balance at the end of the tenure or get refinance. If you want to save money by paying a lower rate of interest, are buying properties when interest rates are high, are sure of purchasing the property you want, are confident of refinance options when the balloon is due, or have no other choice, select a balloon mortgage loan.
This information should help you select the right mortgage loan. Check interest rates carefully before buying and you should be all right!
Joseph Kenny is the webmaster of the loan information sites Select Loans and also French Property Mortgages
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