Interest Rates and
Home Loans – Fixed Rate Mortgages may be better than Adjustable Rates
June 14th, 2006
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Real Estate |
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Considering the
current trend of inflation, gas prices, and the cost of the Iraq war,
interest rates may continue to rise for some time making the fixed rate
home loan very desirable. When shopping for a home loan you will find
that many loans are adjustable rate, interest only, or fixed rate. If
you plan to live in your home for a very long time then fixed rate is
definitely for you. If you plan to live in a home for only two or three
years, you might consider the adjustable rate and interest only, or a
temporary fixed rate home loan.
The benefits of an
adjustable rate loan is that the interest rates are often lower than a
fixed rate loan, the bad part of this type of loan is that when interest
rates go up, so do your monthly payments. It is usually easier to
qualify for the adjustable rate loans.
With a fixed rate
home loan you will be able to budget your month to month expenses and
have a predictable re-payment plan. Fixed rate also means that you can
save money when increased interest rates don’t apply to you. In the long
run this can add up to a lot of extra money in interest paid. You may
not see the value in the first few years of a fixed rate loan, but over
the lifetime of the loan you will likely have saved money on the
interest because it did not fluctuate.
Interest only
loans make it possible to afford approximately a 25% more expensive home
compared to a traditional home loan. You can shop for either adjustable
rate or fixed rate on these loans. The lender usually offers a 10 year
time period to pay interest only with no principal repayment. After
that time period ends, you begin to pay the principal along with the
interest. If you do this type of loan you should be prepared to pay the
increase after the 10 year time period. If you are not able to do this
in 10 years, you are venturing in a risky loan and may have to sell or
may even lose the house.
You need to watch
out for temporary fixed rate loans. There are 5-year fixed (30 year
term) loans that switch to an adjustable rate after the first five years
of the loan. This type of fixed rate loan has a time limit. Chances
are if you go with this loan you are betting on being able to refinance
before it becomes an adjustable rate. If not you could be stuck riding
out the interest rates as they increase and decrease over the years. If
you plan to sell your home before the 5 years are up you should consider
this type of home loan.
Where do you apply
for a home loan and how do you get the best rates? You can use a broker
either in person or online that will shop for you will multiple
lenders. Brokers are good at finding a loan that you can qualify for
and more than likely at the lowest rate. The bad part is that you will
pay points on the loans offered with the broker. Online brokers may be
better because they give you a complete listing of loans and terms
offered, making it your decision. If you shop directly with the bank
you can avoid paying points up front to close the loan, however this can
be a lot of work.
Make sure that you
understand the terms of the loan completely before agreeing with the
proposed loan. If you are not sure that you will be able to role with
the adjustable interest rates on a home loan, you might want to regroup
and plan how you can achieve a 30 year fixed rate mortgage. It could
mean that you need to improve your credit rating, increase your income,
or save up a larger down payment.
Nicole Wilson
Best Syndication
Books Home
Loans
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