Everyone wants to buy a home of their dreams. The cost of the homes seems to have no stopping with the demand increasing and keeping momentum always. However, buying them can never be easy as one will need to get the loan for the same because if one takes to savings it may take decades and even after that the gap will prevail between the property prices and the money you have after all your efforts. Which will mean more money and hence you will have to take loans even after those many years of effort. Also if you decide to invest in the safe options, you are less like to get good returns and the one that you get will hardly mask the effect of inflation.
A lot of people prefer buying a house by taking a mortgage loan in which their house is kept as collateral and monthly installments are to be paid against it. These loans can be both long term or short term loans in which long term loan is for thirty years and the short term loan can be from fifteen to twenty years. Mortgage loans are of two types, fixed rate mortgage and adjustable rate mortgage loans.
Fixed Rate Mortgage
In case of a fixed rate mortgage, the rate of interest paid by the borrower remains the same throughout the term of the loan. This helps the borrower to budget well and know what he is going to have to [pay by the end of the month. The debtor does not become a victim of the fluctuation in the market and of inflation as well. But on the other hand, in case the market rate goes down, the homeowner with a fixed mortgage loan will not benefit at all. The rate of interest offered in case of a fixed rate mortgage is high as the lender has to face the effect of inflation and so, they compensate for the same.
Adjustable Rate Mortgage Loans
In this type of mortgage loan, the rate of interest varies depending upon the market conditions. The repayment plan also has a considerable effect. There are some loans in which fixed rate is there for some time, say ten years and then they are adjusted depending upon the market condition. This is a disadvantage for the homeowner because they are supposed to pay higher installments which becomes a burden and often leads to loan default. The initial rate of interest is generally low when the loan is taken and so, people who expect their income to rise in the coming years prefer this type of loan. So while taking any promotional loans go through the complete details and ask questions to the lenders wherever you find a doubt.
There are times the homeowners are not satisfied with the interest rates offered by their lenders and so want to switch to some other lender. The other reason for the existing high rates on their loans may be that when they took the mortgage for the first time there credit rating was not that good and hence they were offered a higher interest rate. This process is refinancing your mortgage loan in which you take another loan to pay off the existing loan for better terms and rate of interest. Over a period of time one finds that their credit rating has improved and with the improved credit rating the homeowners get the rate of interest they want by negotiating well.
The lenders always are in a lookout of the borrowers with good credit scores so that they can benefit as much as they can from them and so, they are most likely to accept your proposal and give you the loan. You must be prepared for a lengthy procedure when you are planning to get your mortgage loan refinanced as it involves a thorough underwriting and a lot of checking to make sure there is not fraud involved.
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