Since the cost of buying a home is usually too high for most of us, it has become common practice for aspiring homeowners to take out a mortgage loan to make the payment. Before you go out in search of a mortgage lender, however, understanding mortgage loans and the different terminology used should be your first priority. This way, you can search for the best deal and be capable of making negotiations in your favor.
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When you take out a mortgage loan, you will be required to pay this money back in monthly installments for the next 15-30 years, depending on your contract with the lender. If you have the funds, it is much better to avail the 15-year payment plan, which will give you more long-term savings. The monthly payments will be larger but you can save a considerable amount in interest.
The average interest on mortgage loans these days is approximately 7.5% but it can be anywhere from 5% to 12%. This brings us to the two kinds of mortgage loans depending on the type of interest rate – the fixed rate mortgage loans and the adjustable rate mortgage loans. Understanding mortgage loans is absolutely necessary before you can decide on which of these two is the better option.
Fixed Rate Mortgage Loans
These mortgage loans come with a fixed interest rate and a fixed monthly payment for the entire payment period. For example, if you have chosen a 30-year repayment plan, you will already know right from the start how much you will pay the lender each month for the next 30 years. Fixed rate mortgage loans will save you money in the long run and are considered to be the most viable option if you plan on staying in the home for at least eight years.
Adjustable Rate Mortgage Loans
The initial interest for adjustable rate mortgage loans is often much lower but it’s very common for the rate to shoot up after six months or so. You can never tell for sure how much you are going to be paying in the future because this will depend on many different factors. These types of mortgage loans are better for people who plan on moving soon or reselling the house in the near future. The right plan will vary from person to person but if you’ve done your job well in understanding mortgage loans, you won’t have any problems finding a plan that will fit your needs perfectly.