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The lowdown on home loans There are several different types of loans you can choose when you buy a home or refinance the one you already own. The three most common types of conventional loans are Fixed Rate Loans, Adjustable Rate Loans (often referred to as ARMS), and Balloon Loans, sometimes called Two-Step Loans. Conventional loans are those which are not insured or guaranteed by the government.
Fixed Rate loans are those where the interest rate and the principal and interest payment remain the same for the life of the loan. These are usually 30-year loans, but can be for a shorter period--often fifteen or twenty years. The advantage of a Fixed Rate Loan is that the payments will always remain the same. The disadvantage is that the rate is usually higher than the initial rate for other types of loans. The shorter-term Fixed Rate loans usually have a lower interest rate, but because it is a shorter term, monthly payments will be higher.
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