Home Mortgage Loan : How to Find the Perfect Loan

By: Alan Lim

Two Main Categories

There are many different home mortgage loans available but most fall into two main categories. ?To go with an adjustable or a fixed rate home mortgage loan is a matter of personal taste and goals.? To make this decision one must fully understand the fundamental differences between the two types of loans. What may be a great choice for one individual may be a very wrong choice for another. There are advantages and disadvantages to both types of mortgage loans.

Advantages of Fixed Rate Loans

The fixed rate home mortgage loan is good for the person who needs to be able to know exactly what their loan payments are going to be from year to year. The person who finds his stomach tying up in knots over the prime interest rate is a prime candidate for this type of loan. The fixed rate loan is the choice for the person who does not like risk. This loan has an interest rate that does not change with the fluctuations in the economy. Even if the interest rates go up, this loan will not change. If you are planning on being in your home for a long time, then this is the best way to go.

Disadvantages of Fixed Rate Loans

If the interest rates drop significantly over the life of the fixed rate home mortgage loan than the person with this type of loan will be at a grave financial disadvantage.? The way to combat this negative effect is to refinance the loan at a lower rate. Though at the moment this is usually not a problem it may prove troublesome if the person has experienced significant debt problems or if the value of the property has decreased significantly. The total cost of this loan can be significantly higher than an adjustable rate loan if the interest rates have dropped.

Advantages of Adjustable Rate Loans

The adjustable rate home mortgage loan is a good option for those that don't mind a little risk.? This loan will fluctuate with the economy and if the interest rates drop there can be a great deal of savings realized by using this form of loan. When interest rates drop this is a great loan to be in, therefore making it a wise choice for the person that has reason to believe that the interest rates will be heading down.? his is also a wise choice of loans for the person who doesn't intend to be staying in the loan for a long time.?

Disadvantages of Adjustable Rate Loans

An adjustable rate home mortgage loan can be hazardous if the interest rates skyrocket without income increasing to match. It is important to have a rate cap on this type of loan to prevent fluctuations in the economy from eroding your ability to maintain the loan. The stress of worrying about whether next month's payment will be more than you have been paying previously is more discomfort than most homeowners want to deal with on a long term basis.

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