How Home Loans Work

We’ll discuss all of the fundamentals of how low term home loans work here. Find out what kinds of loans are offered and which is right for you.

Fixed-Rate Home Loans

The variety of mortgages is as plentiful as the variety of the homes they pay for. Low term home loans with a fixed interest rate are called fixed-rate mortgages. When you sign on one of these loans, you lock in an interest rate that does not change for the rest of the loan’s term. Fixed-rate loans are usually the most traditional and most popular form of low term mortgages. Fixed-rate loans tend to come with either 15- or 30-year terms. Longer terms may also be available for buyers who want the smallest monthly payment possible. If interest rates are very low right now and/or you anticipate that rates will rise in the future, a fixed-rate home loan is probably a good choice.

Adjustable-Rate Home Loans

The second primary type of low term home loans has an interest rate that varies according to market rates. This type of loan is called an adjustable-rate mortgage, or ARM. Many of these loans come with an introductory period where you have a very low fixed rate. For instance, you might have a 10-year period where your interest rate remains the same. After that period expires, your interest rate will adjust periodically to conform to market conditions. If interest rates are currently high and/or you expect rates to drop in the future, an ARM could be a good bet.

ARM or Fixed-Rate?

Choosing the kind of low term home loans you want is an important decision that you should consider carefully. With fixed-rate mortgages, you have the certainty of regular monthly payments and a steady interest rate. If you’re uncomfortable with uncertainty, a fixed-rate home loan is the better choice. However, with a fixed-rate home loan, your initial payments will be higher than if you had chosen an ARM. Because of the very low rate you will enjoy during the fixed-rate period of an ARM, an adjustable-rate loan can allow you to save cash during the first few years of the term. For those who want to minimize their mortgage payments initially to maximize cash flow, an ARM might be the way to go. Keep in mind that adjustable-rate low term home loans involve a great deal of risk, as you won’t be able to budget or plan far in advance because your payments will change once or twice a year.

Low Term Home Loans for Bad Credit

If you have a credit score below 620, you will be considered a subprime borrower by most lenders. This means you might not have access to traditional low term home loans. Instead, you might have to look into what are called subprime mortgage loans. Some of our lenders offer these loans that are specifically geared toward borrowers with credit challenges. Subprime home loans tend to have higher interest rates and prepayment penalties and are more likely to have balloon payments.

Even if you have put a house up for foreclosure in the past, you are most likely still eligible for a home loan.