subject: Home Loan Rates Explained [print this page] Mortgages enable many people to own homes, a thing that could not have been possible without the loans. After the introduction of mortgages, other different loans came up. They include Adjustable Rates Mortgages (ARMs), and Fixed Rates.
The type of loan that one can get will however vary depending on various factors. Some of the factors are your credit rating and loan-to-value ratio. After you get approved for the loan, you will be required to first of all pay a 20% of the total cost upfront, and the lender will take care of the rest.
Federal Housing Administration loan is where the bank you are borrowing from is a hundred percent insured. You will not be getting the loan from the Federal Housing Administration and that is why they insure the lender who in this case can be a bank. When you go through the FHA you will pay a little less because you will be charged a 3.5 percent down-payment of the total buying price of the unit.
The loan where the rates are not static is what is being referred as the Adjustable Rates Mortgage. The loan rates here may be a little bit lower than the fixed rates. The rates will be fluctuating according to the economic index and the market. These rates are regulated by the government. There are limitations however on the charges that are put in place.
Fixed rates do not fluctuate and your loan will not be based on any index rate although they will be a bit higher than the rates placed on a adjustable rates loan. The difference is that the with the adjustable rates, the risk is less on the side of the lender. With a fixed rate, the borrower is expected to make monthly payments in premiums, but if he or she fails then the lender is at risk. The rates in this case do not change for the whole life of the loan.
The comparison of the amount that the borrower takes as a loan and the real figure that the property is going for is what is referred to as a Loan-to-value ratio. For instance when one borrows $300,000 and the house is going at $400,000, the percentage will be about 75 percent. This ratio is what lenders base their risk on.
The more the loan is, the more the risk of default will be and the greater the interest that will be acquired from the property, the lesser the risk will be to the lender. The lender can ask the borrower to secure the mortgage loan in order to lower the risk. A low loan-to-value ratio is the one that is less than 80 percent and this is why only people with perfect credit ratings can achieve the 100 percent loan-to-value ration.
