Home loan rates

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Home loan rates
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Home Loan Rates - ARM or Fixed?
There are many ways to structure home loan rates,
but the two most common type of loan structures
are the Fixed Rate Mortgage and the Adjustable
Rate Mortgage. The type of mortgage rate that you
choose will depend upon your own situation. The
interest rate is the amount the loan costs you
over time and varies according to the initial
rate set or according to the changes in the index
rate applied to your loan. The fixed rate loan
will carry the same interest rate throughout the
life of the loan, while the ARM changes according
to a predetermined index rate. Definitions There
are two major types of mortgage loans. Home loan
rate that is set at the beginning of the loan and
doesn't change during the course of the loan is
known as a fixed rate loan, for obvious reasons.
The loan rate is often based on what the economy
is doing at the time. Lenders want to protect
themselves if there is an indication that loan
rates may change drastically during the course of
the loan.
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The adjustable rate mortgage is flexible and
helps to protect the lender in situations where
the interest rates are rising over a period of
time. If the increased in rates reach a certain
level, the lender is allowed to adjust the
interest rate and thus the payment amount upward
for the balance of the loan term ARM Advantages
and Disadvantages The ARM is relatively new on
the Home loan rates picture. The ARM or
adjustable rate mortgage was created at a time
when fixed mortgage rates were high. The ARM
allowed initial interest rates to be set lower
than the prevailing fixed rates and to be
adjusted upward according to a predetermined
formula in the future. For example, the ARM
might be set with the rate two points lower than
the fixed mortgage rates at the time with the
provision that after two years, the rate would be
adjusted in accordance with a predetermined index
in the future. More borrowers could qualify to
obtain the loan, while the lenders didn't have
increased risk so long as the interest rates or
index were increasing.
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Fixed Rate Advantages and Disadvantages Fixed
rates are often set slightly higher than ARMs in
order to lock in a loan rate when rates are
rising so that the lender doesn't lose money on
the opportunity to lend money at higher interest
rates. At the same time, with a fixed rate, if
the rates are falling, the lender has the older
fixed rate loans that are bringing more interest
money than the current loan. Fixed rate type Home
loan rates packages are believed to be more
favorable to the borrower than the
lender. Another advantage of the fixed rate loan
is structure. You cannot be priced out of your
home by increasingly painful mortgage rate
adjustments with corresponding payment amount
adjustments. This makes it easier to budget and
to plan your expenditures over a longer period of
time.
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