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A home is likely to be the largest purchase you will ever make. No one is just walking around with that kind of cash burning a hole in their pocket so chances are you are going to need a home loan to do it. The home loan is also known as a mortgage, which grimly enough is a french word for 'death pledge'. As it was not uncommon for someone to pay off a mortgage over the course of their entire life time. In modern times there are many different types of home loans available depending on your requirements. The loans usually come with a time frame for repayment from five to twenty-five years. Much easier than a loan for the rest of your life. In the United States there are two basic types of home loans most commonly available. These are the fixed rate mortgage and the adjustable rate mortgage. The first, fixed rate mortgage, is basically what it sounds like. The home loan is locked at the interest rate negotiated at the time of the loan. The size of the payment that must be made each billing period is constant throughout the term of the loan. The added stability comes at a cost however, the interest rate for this type of home loan is usually slightly higher then the equivalent sized adjustable rate mortgage. The adjustable rate mortgage is again exactly what it sounds like. The interest rate of the home loan will vary over the term of the loan. The rate may be changed at any regular period, as negotiated at the beginning of the loan. Commonly the rate may be adjusted monthly or annually. Because of the slightly higher risk involved the interest rate is often times lower then the same size fixed rate mortgage. Thankfully the bank doesn't just to decide what the adjustment to the home loan interest rate will be. The interest rate can be tied to any one of many market indexes. Another common type of home loan is an equity mortgage. This is a type of second mortgage, where you borrow money against equity you have built into your first mortgage. This requires that you have built equity into your house by having paid down some significant portion of your current mortgage. The conventionally held wisdom is that the adjustable rate home loan will do better in the long run. This of course depends on what happens to the interest rate of the mortgage. There is one guaranteed ways to save money on your home loan. You need to have the best credit score you possibly can at the time you apply. The banks only offer the best interest rates to applicants that have the best credit scores. These applicants are thought to be less risk over potential borrowers with poor credit scores.
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