A home is one of Americans’ biggest investments, and one which is very often financed by a bank. A small, but seemingly growing, minority finances their home purchases with all cash. When you can’t pay out of pocket for a home, though, your next best options are low interest home loans, which can be found easily if you know where to look.
Interest rates on home loans are usually the same from lender to lender. Money is a commodity, and banks have to compete on price, especially when a borrower is looking to borrow $100,000 or more. Today, rates can be found as low as 4% for 30 years, and even lower for adjustable rate mortgages, or fixed-rate loans with shorter durations.
The duration of your home mortgage will affect the rate that you pay to borrow money. The longer you borrow money, the longer you pay. Therefore, a 15 year mortgage will always have a lower rate than a 30 year mortgage, as the bank has more risk in making a loan for longer periods of time. A lot can happen in 15 years, but a lot more can happen in 30 years.
The different kinds of loans are as follows:
1. 15-30 year fixed – The United States is one of the few countries where consumers can borrow money for 30 years (or sometimes more!) to pay for the purchase of a home. A 15-30 year fixed rate mortgage allows you to borrow money for a home and pay it off over a period of many years. The word “fixed” implies that the rate of interest on the home loan is fixed for the duration of the loan. Thus, even if interest rates rise or fall, you’ll always pay the same amount of interest on your home loan until it is paid off, or refinanced.
2. ARMs – Adjustable rate mortgages are a common loan type for people who do not plan to own their home for a long period of time, or who feel confident that interest rates will stay low for the duration of their home ownership. An adjustable rate mortgage is most often written as an “ARM 5/1,” which is a 5-year loan term which allows the bank to change the interest rate on the mortgage once per year. Borrowing for 5 years does not mean that you have to pay the loan off in 5 years. Instead, your payments will be roughly the size as a similar 15-30 year fixed rate loan. At the end of the 5 year term, you have an option to pay in full (very few people have the cash to do this) or roll the ARM into a new fixed-rate mortgage, or another 5/1 ARM loan.
Low Interest Home Loans
The US government does a lot to make sure that Americans can own their own home. With more than 60% of people owning a home, the government has a few unique programs to make home ownership affordable for everyone.
The best low interest home loans come through the Federal Housing Authority, which guarantees the loan against default, and therefore provides lower rates of interest to the borrower in return for the reduced risk. Getting an FHA guaranteed loan is fairly easy, and best of all you’ll only have to put down 3.5% of the home’s price to make ownership a reality.
Other programs exist for Americans with special conditions. The Vetrans Affairs office, for example, offers a “VA” low interest home loan to borrowers who currently serve, or have served, in the US Army, Air Force, Navy, or Marines.