Home Loan Rates: What
Home Buyers Need to
Buying a home is a crucial decision for anyone.
It may be a good investment, but it’s a heavy
financial commitment. For buyers who could no
longer repay, their homes will be repossessed
and sold off. Buyers need to know what they are
getting themselves into. If you are one, you
need to understand how home loan rates work.
What is the Interest Rate on a Home
When we take out a home loan, we are expected
to pay the borrowed amount plus interest.
Interest is what the bank charges to recover
their costs and make a profit. By charging
interest, a lending company will have enough
resources to lend money in the first place.
Interest is charged in percentage. For
instance, a bank may charge 2% interest on a
$300,000 loan. Interest charges vary among
states and countries. A bank in NYC charges
differently from a similar bank in West
Fixed Interest Loans
Listed below are types of interest rates
available to homeowners.
Fixed interest rate is the specific rate,
lenders and borrowers agree on, for a
specified time period. A good example is,
when a customer agrees to a fixed rate of 2%
for five years.
Neither a bank nor a customer can break this
agreement without consequences. A
homeowner, who wants to get out of a
contract, will have to pay a fee.
Customers can only do this when they find a
lower interest rate. The bank loses money
when this happens. Banks charge a small fee
to reprove a customer for breach of
contract. Fixed home loan rates are great
for borrowers who want the same payments
Floating (Variable) Interest Loans
Capped Rate Loans
Variable rates move with economic climates.
If an economy does well, the rates will be
high. When there is a recession, rates will
drop. Choosing a floating rate will depend
on your personal circumstances, the economic
climate and your ability to take risks.
Capped rates are essentially variable home
loan rates, capped at a specified amount.
When a variable rate goes above the capped
rate, a homeowner need not pay a higher
interest rate. Capped rates are ideal for
borrowers who want low variable rates without
the risk of market changes.
Interest Only Home Loans
Some banks allow borrowers to pay off loan
interests without paying off any of their
capital. This helps borrowers who are in
financial trouble. Though this solution will
not make customers wealthier, it should only
be used to cut down on expenses. Homeowners
should look around for good interest rates.
As banks are very competitive, it’s practical
to get quotes from several banks.
A small discount on a rate could save a
homeowner thousands of dollars on interests.
If home buyers could get better rates, they
should let their bank know. Some banks are
willing to drop rates to secure customers.
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