A lot of people who want to lend money from a loan company or a financial institution such as banks or lending companies are confused on the different functions, meanings, and terminologies that they have to memorize when they want to avail of home loans or personal loans.
There are many borrowers who are not that knowledgeable about the different types loans that are why it would be timely to talk about it and help you out differentiating the types of loans that will give you better decision-making.
There are two types of loans, the adjustable-rate loans, and the fixed-rate loans. These types of loans have a lot of differences and terms which makes them completely opposite to each other.
Knowing these two types of loans is very important for people who are buying homes in order to make the right choice especially that there are a lot of available loans online, you should learn each of its meaning, learn its pros and cons and a lot more.
- Fixed rate loan
This type of loan has an interest rate that comes with a permanent interest rate throughout the duration of the payment period that the borrower has to follow. The payment should stay the same and must be paid within a regular basis either monthly, quarterly or annually. This is preferred by many because of the fixed amount of the monthly payment which helps the borrowers to have the predictability of the payment due.
- Adjustable rate loan
This type of loan has an interest rate that constantly changes based on its pre-determined intervals in the entire duration of the loan. It is very unpredictable considering that the rate adjusts regularly through time. This type of mortgage, however, have an interest cap which creates a limitation of how much the rate can change over the period of the time of the payment and the lifetime of the loan. This is often known as a hybrid loan because of its constant change and this type of loan or mortgage is best for people who plan to stay in the home for a few years.