Choosing the best home loan for your current financial situation can be a difficult task due to the numerous options available from various lenders. There is a wide range of home loan products offered by lenders to ensure that nearly everyone that wants a home loan will be able to get one that fits with their financial needs. Here are some things that you should consider when choosing a home loan to buy a new home.
Fixed Rate Vs. Adjustable Rate
One of the main things to consider when searching for a home loan is whether you want a fixed rate loan or an adjustable rate loan. Both types have their pros and cons. With a fixed rate loan, you have the peace of mind of knowing that your payments will remain the same over the entire life of the loan and your interest rate will never increase. With an adjustable rate loan, the interest rate is tied to a benchmark rate and can fluctuate up or down depending on the market. This can considerably affect the amount that you are required to pay each month and can make the payments unaffordable if you are not prepared when the interest rate rises.
15 Vs. 30 Year Term
Another thing you must consider is whether you want a term of fifteen or thirty years for your home loan. Once again, there are pros and cons for both options. If you choose a loan with a term of thirty years, your payments will be lower each month, but you will be paying for twice as long and pay much more interest over the life of the loan. With a fifteen year term, you will pay more, but will own your home much sooner and save thousands of dollars in interest charges. You will also build equity in your home faster with a fifteen-year term because more of the payment is going towards lowering the principal of the loan.
Down Payment Requirements
The amount of the down payment required for the loan is one more important consideration to take into account. Different types of loans will have different down payment requirements, ranging from 3 percent to 20 percent of the loan amount. The best interest rates are reserved for the people that have excellent credit and are able to put down 20 percent of the loan amount as a down payment on the home loan.
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