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FACT: The real estate sector is abuzz with different
types of home loans that prospective homeowners can
avail of. Today, more than ever, homebuyers are buttressed
with different options that selecting one that fits
their lifestyle and earning capacity becomes a dilemma.
Unlike the generations before us where homeownership is
a blueprint of hard work, diligence and perseverance; recent
counterpart pales in comparison. Modern homeowners never
stay in one place. They often move from one city to the
next, depending on the dictates of their livelihood. No
wonder the different types of home loans are patterned after
this new generation of gypsies.
Basically the types of home loans evolve around three different
categories. Under the first category is a fixed-rate mortgage
type of home loan. Traditionally, a fixed-rate mortgage
home loan is the most popular choice among homeowners, because
amortization is programmed fixed for up to 40 years.
Besides, homeowners are protected against inflation due
to a fixed-monthly payment scheme that extends up to the
whole life of the loan. Moreover, because of the liberal
amortization scheme, homeowner's can easily plan and budget
without literally hurting their finances.
The second category is the adjustable-rate mortgage (ARM)
type of home loan, the best widely accepted alternative
among homeowners. It differs from fixed-rate mortgage, because
the interest and monthly payment can fluctuate over the
entire life of the loan. This is so because the interest
rate is tied to an index (such as Treasury Securities) that
may rise or fall over time, depending on the economic fundamentals
of the country.
To protect homeowners against dramatic increases, ARM loans
are provided with caps that tend to limit the rate from
rapid increases over and above a certain amount. Rate is
also limited up to 3% annually between adjustments and a
ceiling of no more than 6% during the entire life of the
loan. ARM loans are marketed at a very low introductory
interest rate.
The third type of home loan is the hybrid type which is
a combination of both fixed-rate mortgage and adjustable-rate
mortgage. Usually, a hybrid loan initially charges a low
interest, fixed-rate agreement and is converted later into
a much higher interest adjustable-rate scheme. Homeowner's
are advised to check the rate of increase imposed following
conversion since some hybrid loans do not carry caps, particularly
after the initial adjustment period.
Another variation of the hybrid type of home loan is balloon
payment which refers to loans that stipulate a large final
payment due at the end of the loan. Currently we have fixed-rate
loans that provide homeowners the liberty of making payments
based on a 30-year amortization plan, even if the balloon
payment is due in 7 years. Endemic to all hybrid loans,
this scheme is attractive to homeowners that plan to stay
for only a short period of time, because it provides the
stability of a fixed-rate mortgage type.
A major factor that affects homeowner's choice over the
type of home loans is time. If a homeowner decides to stay
for 10 years, then the best option is take the fixed-rate
mortgage. But if the homeowner intends to stay for 5 years
only, the adjustable-rate mortgage becomes a reasonable
choice since ARM loans carry low-introductory interest rates.
Fiction: The 30-year fixed home mortgage loan
is the most detrimental of the loans that one can
have. Two of the top loans are the 2-year variable
rate loan and the state income 150-year loan. With
the two year home mortgage loan interest is almost
negligible. On the flip side you may have to win the
lottery or invest in gambling to come up with the
monthly payments. In regard to the 150-year stated
income loan, why not leave the debt to your kids and
grandkids. They will probably be living at your place
anyway, after they've kicked you out onto the street
where you'll be living under and overpass during your
senior years. Either of these loan types is ideal.
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