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When buying a home, most people seek out financing in the form of a home loan or mortgage. In this case, you’ll need to choose between a fixed and variable interest rate, each of which has specific drawbacks and advantages. The following guide can help you understand these options and make the best decision for your needs. 

Fixed-Rate Home Loans

Fixed-rate loans are less complicated and often considered to be a safer bet for homeowners. At the time you’re approved for a loan, you lock in a specific interest rate that remains for the entire loan term. That means you can expect the same monthly payments for the duration of your mortgage, whether that’s 15, 20, or 30 years. 

One major downside is that you won’t be able to refinance to get a lower interest rate when the market fluctuates. Interest rates for fixed-rate home loans tend to be higher in general, which can impact the size of the loan you’re approved for. Additionally, more of your payment goes to interest when the rate is higher. 

Variable-Rate Home Loans

home loanVariable-rate mortgages are linked to market fluctuations. They’re enticing because they usually have a sort of grace period where rates will be lower when compared to fixed-rate loans. For example, you may be privy to a locked-in lower rate for a period of years when you first sign up for the loan.

Once this grace period has ended, the interest rate will change based on market fluctuations. If interest rates are low, your payments will remain low, which is definitely a positive. However, if interest rates are higher, the interest rate on your loan and monthly payments will also increase. If your income can’t comfortably cover these increases, paying off your mortgage will be more difficult. 

 

Can’t decide whether a fixed or variable rate home loan is right for you? Deuane Woodward, a loanDepot® consultant, will review your financial data to help you make the best possible decision. Deuane offers the benefit of more than three decades of experience, during which time he’s accrued knowledge on a variety of loan products. Along with home purchases, he can also advise clients on refinancing or funding options for new home construction. Schedule a consultation in North Richland Hills, TX, by calling (817) 875-6043. Visit his website for more information on home financing. 

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