Basic Home Loan Options
If you’re tired of throwing money away in rent and have decided to become a home owner, you have two basic types of bank loans to choose from. You can either obtain a fixed rate or variable rate bank loan. The best choice for you will depend on your situation.
A fixed rate mortgage loan is the traditional type of home loan. As the name implies, fixed rate means that the interest fees are assessed at a fixed rate on the total amount of the loan. The term of the loan ranges from 15 to 20 years and all the payments are the same.
The interest fees on variable rate loans varies. Initially, the interest fees are lower than with a fixed rate loan and remain lower for a set period. But, after a period of 3, 5 or 7 years, the interest will rise with changes in interest rates. This type of bank loan can be risky because your payments could suddenly become to high for you to pay.
If you plan to stay in the home long term, a fixed rate loan is the best choice. A variable rate loan can be a good option for anyone that moves around a lot. For instance, if you have to move often because of your job and would be selling the home before the initial low interest period expires.
