Home Loan Interest Rate

The home loan interest rate represents the factor that makes the difference between various loan categories. The repayment schedule and the monthly costs thus depend on this variable, particularly when there are increases in the rates. The home loan interest rate can be fixed, variable or a combination of these two. There are lenders that even provide 'introductory' rates that are smaller for the first period of repayment.

When you have a variable home loan interest rate, there are no penalty fees or additional costs in case you want to make additional payments. Plus, the interest rate will drop together with the cash rate. Unfortunately, increases of the interest rate can occur both in relation with a cash rate or independent of it. The more rewarding situation from this perspective is the fixed interest rate, which remains locked at the same level for up to five years. At least you know where your finances stand every month and you can make plans.

With a fixed home loan interest rate, you cannot take advantage of the rate decrease, plus, there may be restrictions in case you want to make a repayment in advance. The introductory home loan interest rate is very advantageous for the first one or two years of the repayment schedule, but then it gets much higher. Unfortunately there are high termination fees and high monthly rates when the introductory period ends.

Mention must be made that any comparison between loan offers is difficult or almost impossible given the difference in the home loan interest rate and the existence or absence of additional fees. Therefore, lenders must provide a 'comparison rate' which represents the interest rate together with all the fees and charges. For instance, due to the supplementary charges, a home loan with an interest rate of 8.0% percent can have the comparison rate of 8.5%. For a full picture of the loan offer, it is important to consider the rest of the features too, besides the home loan interest rates.

Do not neglect to carefully check the termination fees, because they can give you a very nasty surprise. If you have to pay a lot of money for terminating the loan sooner, then the initial deal is no longer that advantageous. 2% for early termination is quite a lot if you finish before the scheduled term, this means that you'll make no savings despite the low comparison rate.

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Filed under: Foreclosure San Diego

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