Home Loans
Sunday, January 28th, 2007It is the dream of each and every person to own his/her own home. The tastes are varied. Some prefer small individual homes. A few others relish apartments. There are some that fantasize about huge, sprawling bungalows, with swimming pool, mowed lawn, kitchen garden, etc. Ultimately, everything boils down to money. You get what you pay for. It is obvious that very few people have the money to pay the entire amount of the property upfront. Home loans play a very critical role in this.
The type of the house that you desire, its cost, prevailing and possible future interest rates, and period of repayment usually decide which is the most ideal home that suits the budget. Certain other costs like land registration fees, local taxes, appraiser fees, home loan processing fees, loan documentation fees, insurance premiums, etc. could also create significant impact on the decision. It is very much necessary to analyze all these factors carefully before determining the type of home loan one should opt for.
After deciding on the house that a prospective homebuyer wishes to have, he/she has to evaluate the interest rate and the period of payment that would best suit the income level. Usually, home loan lenders offer two types of interest rates, fixed interest rates and variable interest rates. Fixed interest rates are preferable when the rates are very low. Then, the only way the rates can go is upwards.
However, the prevailing interest rates are hovering just below historically high levels at around 6.5%. The U.S. Federal Reserve was maintaining its overnight interest rate at 1% prior to June 2004. Subsequently, to combat inflationary trends, the Fed hiked the rates 17 times consecutively from June 2004 to June 2006 by a quarter of a percentage point every time. At present, the Fed rate stands at 5.25%. As such, there is very little chance for the rates to rise much higher in the next few years. It is obvious that nobody can predict exactly the interest rate fluctuations over the next several years. Still, the probability of the rates getting lower in future is more. Hence, the variable interest rate would be the most suitable option now for home loan borrowers.
An analysis of the rates offered by various home loan providers in the United States reveal that a 15-year fixed mortgage loan carries an annualized interest of around 5.330%. A 30-year fixed mortgage loan is charged 5.785% interest. On the other hand, a 12-month MTA adjustable rate mortgage (ARM) loan interest is 2.925%, and a 3-month COFI ARM rate is 2.621%. Adjustable rate mortgage loans are available from 1 to 10 years. That is, the loan would carry a fixed interest for a period of 1 to 10 years as per the agreement. After that period, the loans would have variable interest rates. In the present scenario, ARM loans would be the best option for a home loan borrower.
