Types of Home Loan Mortgage Rates
There are several types of home loan mortgage rates that makes the process of borrowing a lot more stressful than necessary. Your loan will affect you for the next 15 to 30 years, so it’s natural for anyone to consider each kind before picking the perfect home loan mortgage rate for their lifestyle.
A fixed-rate mortgage is by far one of the most conventional mortgages any borrower can choose. With this mortgage your interest rate remains the same throughout the life of the loan. Meaning those who received a mortgage with a 4.6% interest rate to begin with remains with 4.6% for the duration of payment.
The benefit of a fixed-rate loan is that the repayments are consistent. Borrowers never have to worry about their interest rate raising or lowering with the market. However, that also means that someone with a fixed-rate mortgage doesn’t have access to lowering their interest rate later in the loan.
An alternative to a fixed-rate mortgage is a variable mortgage. This type changes based on the market, meaning a borrower can get a 5.6% interest rate but have a much lower interest rate five years later.
If a borrower initially received 5.6%, the market could improve, and the rate could fall to an astounding 3.4%. Unfortunately, this also presents the biggest drawback: the rates could also increase. A lower rate could inflate if the market performs poorly. So this kind of loan is especially risky for those that have received a lower rate on their loan to being with.
A balloon mortgage is a rare type of mortgage that is designed to be short-term, yet offers the opportunity for someone to get a loan if they currently have a low income but expect to earn more in the future. The monthly payments of a balloon mortgage are lower because the borrower makes a large payment at the end of the loan. They’re ideal for responsible mortgage borrowers with the intentions of selling the home before the due date of the balloon payment.
When you’ve been approved for a loan, you have the option of a 15-year or 30-year mortgage. The 15-year mortgage balances out the payments over 15 years. A borrower can choose a fixed-rate or variable rate mortgage based on their preferences. The benefit of a 15-year mortgage is the low total cost, but this also means higher monthly payments throughout the life of the loan.
Alternatively, a borrower can choose to get a 30-year mortgage, where the payments are spread out over 30 years. Like a 15-year loan, it’s possible to get a fixed or variable rate. The benefit of a 30-year loan is that the monthly payments are much lower than 15-year mortgages. However, the longer repayment period means the interest will compound and the total cost is much higher than a 15-year loan.