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Fixed Vs. Adjustable Rate Home Mortgage Loan

By: Alan Lim

Getting a home mortgage loan but confused which particular type to get? Read about fixed and adjustable rate mortgages through this article.

If you are getting yourself a home mortgage loan, you will most likely encounter a phase where you are torn between choosing a fixed rate or an adjustable type of mortgage. No one can really say that one loan is better than the other. The choice you make is dependent on a number of factors which may include your interest rate outlook, your budget, the number of years you intend to stay in your home, and how much risk you can tolerate. Let us look through these two types of mortgage loans so you can determine which among the two is best for you.

A fixed rate home mortgage loan (FRM), as its name itself suggest, involves loans whose interest rates remain the same all throughout the lifetime of the mortgage. They generally cost more to compensate for the lesser risk and the greater comfort involved. If the current interest rates are low, an FRM will prove to be a good choice as you will be assured of locking in at a low interest all throughout your loan term.

On the other hand, an adjustable rate home mortgage loan (ARM) is that whose rate fluctuates as the interest rates in the market rise and fall. ARMs are given initially cheaper than FRMs since they involve greater risk. They are a great option if the current interest rates are high and you foresee them to lower in the coming years. If you know that you will stay in your home for a relatively short period, you can get a good deal with an ARM.

The downside of getting an adjustable home mortgage loan is that you can run a real risk of having to pay more if interest rates rise sharply. This means that you will need to pay more in monthly payments. The rate of your ARM loan varies depending on your loan agreement terms. Some rates change as frequently as three months, while others change once a year or every three years. ARMs generally come with a rate cap, which limits the amount by which the lender can raise their rate. The cap is usually set to 2% meaning that the rate increase should only be a maximum of two percent for a given adjustment period.

Because of its stability and lesser risk, FRMs are understandably more popular. Even if they come more expensive, getting a fixed rate home mortgage loan will enable you to easily manage your monthly budget so you can have better control of your finances. It is also less risky since you always have the option to refinance in case interest rates drop uncontrollably. Conversely, although ARMs can be risky and confusing, there are good deals provided by many lenders which are actually better than FRMs.

The type of home mortgage loan you should choose depends on various factors. It all boils down to how open you are with taking risks. To help you figure out which one is best, you can try to imagine your worst and best case scenarios. You can calculate and compare your options and determine which one can give you the best deal possible.

Article Source:
http://www.articlecity.com/articles/business_and_finance/article_9001.shtml

Is APR The Only Thing That Matters On Personal Loans?

By: Melissa Kellett

You always hear that in order to get a good deal on a personal loan, you have to search around and request loan quotes from many lenders before deciding which offer is best for you. However, what should you look at when comparing loan quotes? Is the APR the only variable to consider? Within this article you will find the answers to these questions.

Personal Loans

Everyone knows personal loans issued by banks and traditional financial institutions. Even though the financial industry has evolved over the years and everyday there are more and more financial products, banks and traditional financial institutions offer only a limited range of options on personal loans.

Collateral

There are secured and unsecured personal loans. The security (or collateral) is also an important factor to be taken into account when shopping for a lender. If you can provide collateral you may get a much better interest rate than with an unsecured loan. Nevertheless, you should also compare APR as if the difference is not that significant it is not worth the risk of loosing your property.

Interest Rate Type

The interest rate charged for the loans can be fixed or variable. If fixed, it will remain the same over the whole life of the loan. And the monthly payments will not vary over the months if there are market variations. Variable interest rates tend to be lower but can be modified if market conditions change thus risking a significant increase in your monthly installments.

APR

APR stands for Annual Percentage Rate, it is the annual cost of the loan and includes interest, service charges, loan fees, insurance, and other items. Since it includes almost every aspect of the loan it?s an excellent way to compare loan quotes. However, as stated, it includes only almost every aspect. There are some factors that cannot be measured, are too difficult to measure or have a different value for each person according to their financial and credit situation. Thus, these extra variables cannot be included into this percentage.

Other Things To Take Into Account

The Personal Loan flexibility should be taken into consideration too. Being able to repay the loan early if you run into extra cash or get grace periods if you happen to suffer a momentary reduction on your income are two worthy features. However, the actual value of these features cannot be calculated in advance and thus are not included in the APR.

There are also some fees that due to their nature are not included in the APR, some of them are: Arrangement fees, closing costs, set up fees, Administrative fees, etc. Since the APR is calculated with a procedure established by the federal government, these fees and costs (not present on all kind of loans), where not contemplated and thus are not included in the APR formula.

Be aware that some low APRs, are only available for a promotional introductory period. After the period has ended, the APR may skyrocket, so make sure you read the fine print and do your comparison with the real APR. Finally, you should be especially careful with penalty fees that are charged when you miss payments or pay late which can turn out to be too onerous too and are not included in the APR.

Article Source:
http://www.articlecity.com/articles/business_and_finance/article_9102.shtml