The Two Main Types of Home Mortgage Loan

Filed in mortgages on May.16, 2010

There are two major types of loans to look at when you are looking for a home mortgage loan. They are the fixed rate and the adjustable rate loans. Both have their advantages and disadvantages depending on your personal situation. The fixed rate loan is the most favorable as your rate remains the same throughout the term of the loan whereas the adjustable is subject to change.

If you are on a tight budget, a fixed rate loan will not change, therefore you will know what your payment will be each and every month. As you are aware, interest rates are subject to fluctuations daily, so with a fixed rate loan there are no surprises and you can plan your budget accordingly. The fixed rate loan never changes and will remain the same throughout the term of the loan. Therefore, if you lock in at a relatively low rate and the interest rates increase, you are at an advantage.

On the downside however, if you lock in at a certain rate and the rates decrease then you are at a disadvantage. But if the interest rate and the payment fall within your budget criteria you will always be able to cover your payment.

When a fixed rate is advertised by a lender, you need to know that this rate is based on certain financial parameters. Your rate may be different if you do not meet the guidelines advertised.

However, an adjustable rate loan is a little easier to qualify for as they usually start out with a lower interest rate, and therefore a lower payment. If you know your salary will increase annually, then your income will grow and you’ll be able to afford an increase in your payment.

If you are uncertain of your income, however, the fixed rate mortgage loan may be the safest way to go because you will always know what your monthly payment will be as it will not change.

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