Home Loan Woes
There are many home loan options available and as good as that is, it can also be confusing. The most common loan options are “fixed rate loan”, “adjustable rate loan” and even something known as a “hybrid” loan. So which home loan is the best for you so that it doesn’t become an added struggle in your day to day living? Well everyone is different and have different needs, so it may be best to break down each option to better assess.
Fixed Rate Loan
A fixed rate loan is exactly what is sounds like, a loan that has an interest rate that does not fluctuate during the fixed rate period of the loan. This type of loan allows for homeowners to more easily plan out their payments into the future, essentially giving you a plan off the bat.
Fixed Rate Loans can come in a couple different options, for example either a 15 year or 30 year-fixed plan. So which is better, a 15 year program or 30 year? Generally the 30 year program is the most popular in today’s marketplace. The difference between the 15 year and 30 year boils down to a slight variation in rates and payment prices. Generally a 30 year will have lower payments in comparison to a 15 year. The big point is the interest rate that is paid. Since the 15 year program has less interest rates, it will result in significantly less money paid on interest by the end of the program in comparison to the 30 year program which will result in a large sum of interest gained, but lower monthly payments.
Now for the secret most people don’t know. There are other programs beside the 15 and 30 year program. Sometimes people want the 15 year program but end up not qualifying due to the payments being so high. To help solve this issue, there are also 20 and 25 year programs. These offer balances between the two initial choices and refine your options to align better with your income capabilities.
Adjustable and Hybrid Loans
Adjustable Rate Loan
In contrast to the fixed rate loan, we have the adjustable rate loan. This will mean that planning will become a bit more challenging because you can’t count on the payments to always be the same. The adjustment to the monthly payments will be in response to an index which reflects the cost to the lender of borrowing on the credit markets. Adjustable rates transfer some of the interest rate risk away from the lender and onto the borrower. The borrower can benefit if the interest rate falls but can lose if the rate increases, however the reduced margins to the underlying cost of borrowing will benefit the borrower in comparison to fixed or capped rate mortgages.
Basically, the fluctuation of adjustable rate loans can be good or bad, and are a bit of a gamble, especially if your income situation isn’t always consistent.
A hybrid mortgage is a type of adjustable rate mortgage that offers a fixed rate for a predetermined period and afterwards an adjustable rate for the rest of the loan term. For example the first 10 years of a 30 year program may be fixed, where as the remaining 20 years of the program may transition into adjustable rates. These are pretty hard to plan out unless you have a defined 30 years ahead of you due to the multiple changes that can occur and the predictability of life. However this may also be a great option depending on your circumstances.
No matter the loan option your leaning towards now, it is always best to talk the options over with your loan agent to really grind out the details so you know what to expect for the coming years in regards to your home.
Kontor Realty Group
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Give us a call or send us an email and let us use our extensive knowledge to find you the property your looking for.