From the outlook, bad credit loans might seem like simple to some individuals but in reality, they are quite complex. A loan may be acquired for a car, a house, a business, or for any other reason. A long term loan is a long term obligation and it is highly important to ensure that this obligation does not turn into an unmanageable stream of cash outflows in the future. There are a number of loan options associated with house loan and this article explores some of those options.
House loans are differentiated in accordance with their structure. It is important to consider the structure of the mortgage option before acquiring it. Following are some of the mortgage options:
- Fixed Rate Mortgage
Fixed rate mortgage is considered to be the best option because it eliminates the risk related to the fluctuations in the interest rate. The interest rate is determined at the inception of the agreement and it remains the same throughout the term of the loan. Another advantageous attributed associated with this loan option is that you retain the option to refinance the loan if the interest rate falls, however in case the interest rate increases, you can continue your repayments in accordance with the interest rate under which the agreement was locked. This is highly feasible option in long term if the trend of interest rate suggests that the interest rate is likely to rise in the future.
- Adjustable Rate Mortgage
In this loan option, the initial interest rate is lower than that of the market rate but after the initial period of the loan is over, the interest rate is increased. This loan option is only feasible if you can be certain that your earnings will increase in the future; otherwise, this loan option can prove to be a stressful burden as the term matures.
- Interest Only Payments
According to this option, you are provided with the option to pay only the amount of interest for a certain period of time. At its inception, options may seem like a very beneficial one but there are a number of disadvantages associated with this option. The very first disadvantage is the increase in the term of loan and increased cash outflows. When you only pay for the accrued interest, the amount of principal remains the same; therefore, the amount of interest does not decline and it keeps accruing for as long as the principal amount remains unpaid.
- Flexible Home Loan
This option is similar to the previous one. In this option, you hold high level of flexibility as you can pay higher amounts in the initial periods in order to ensure that the subsequent payments are decreased. This way, you can repay higher amounts of principal in the initial periods so that the interest amount lowers in the future periods. This is a feasible option if you have the resources to pay off higher amounts initially.
Therefore, it can be concluded that there are several options available on loans and determining which option is the most feasible depends upon the borrower’s current or prospective financial position.