Home Loan Basics Know What Works for You

Community bank

Whether you’re looking at buying a home to live in or as an investment, applying for a home loan is usually a crucial step in the process. Home loans are issued every day by banking services throughout the country. Unfortunately, delinquency is not unheard of. About 1.24% of today’s mortgages are in delinquency, and 6 million people are estimated to be behind in things like car payments by more than 90 days. The key to financial success and stability is finding the right home loans for your situation.

30 Year Fixed Home Loans

With these loans, the interest and mortgage payments are the same for 30 years. These are often more expensive than adjustable-rate mortgages, but they offer stability and predictability. This is a great loan for people who plan to live in their home for at least a decade and who are reasonably sure they will be able to afford the payments every month.

15 Year Fixed Home Loans

This works the same as a 30 year fixed mortgage, but the payments are higher and the property is paid off more quickly. The upsides include the same stability and predicatablity as the 30-year mortgage, plus equity that builds much more quickly. The downside compared to the 30-year loan is that higher payments might mean you are more restricted in the price of home you can afford.

Adjustable Rate Home Loans

The interest rate of these loans varies according to a plan of specific time. They usually offer lower interest rates than a 30-year loan, especially initially, and they adjust with the market. At the end of the initial period, you may end up paying more or less in interest. The interest may change every year, every seven years, or every three years according to the specifics. These are good loans for people planning to move in five years, or for those buying a property as an investment to sell quickly.

INterest Only Home Loans

in this type of home loan, you only pay interest for the first period, often seven years with a 30-year loan. Starting in the eighth year, you would then pay both interest and principle for the rest of the mortgage period. It is often possible to refinance at the end of the interest-only period. This type of loan is popular with those who have good reason to expect their financial situation will improve in the near future, or who are sure that the property will appreciate quite a bit during that initial time. Of course, if your finances don’t improve or the property doesn’t appreciate, it can be a risky investment.

These are some of the basic types of home loans, and it’s worth knowing in advance at least which types are not right for you. Choosing a bank and buying a home can be stressful: educate yourself in advance on the best choices for your needs.

Leave a Comment