Buying your first home is a big step. To take that step, you likely need to get a loan. That means that you need to have a basic understanding of the types of real estate loans that are available to you. Having a good grasp of the basics will make it easier for you to decide what kind of loan you want to take out. What are some of the basic types of loans that you should know about?
The first one is a fixed-rate mortgage. Fixed-rate refers to the interest rate that you will have on your loan. The interest rate you have when you sign your mortgage will be the same interest rate you will pay for the life of your mortgage, whether it is a five-year mortgage or a 30-year mortgage. The benefit of a fixed-rate mortgage is that your payments will be the same price throughout the term, making it easy for you to predict your budget. The fact that you are locked into that rate can also be a problem if the interest rate was high when you signed your mortgage. If you think that a fixed-rate mortgage is the right choice for you, pay attention to the interest rates to get the best rate possible.
You may also hear these called ARMs. This kind of mortgage doesn't have a set interest rate. Instead, the rate you pay will go up and down depending on the interest rate, which means your payments will go up and down. ARMs generally have a lower interest rate than a fixed rate, but that doesn't mean it will stay that way. A hybrid of the two does exist. A hybrid mortgage has an adjustable rate for a set period, then will switch over to a fixed rate. A standard ARM will also allow you to refinance your mortgage into a fixed-rate mortgage to take advantage of a very low-interest rate. The general rule of thumb on refinancing is to refinance if you get at least a 1% reduction of your current rate.
Choosing the right mortgage to get your first house can be difficult. You have all kinds of options out there. A basic understanding of some of the real estate loans available to you will make it easier for you to decide which loan to get. The better you understand the options in front of you, the better armed you will be when getting your loan.
To learn more about loans, contact a real estate loan lending service in your area.