Basics

Types of Home Loan

There’s 2 components in your home loan: principal and interest. The amount your borrow is the principal, and you pay interest for borrowing the money.
Choosing among different types of loans helps you structure the interest based on your financial conditions.

Fixed vs. Adjustable Rate

Generally you are choosing between the 2 main types of loans: a fixed-rate mortgage or an adjustable-rate mortgage. The fixed-rate mortgage provides an interest rate that doesn’t change with time, which means the amount (principal+interest) your pay every month will stay the same. The adjustable-rate mortgage, as it’s name suggests, adjusts according to the market interest rate after certain period of time (ranging from 1-10 years.) Usually the initial interest rate will be slightly higher for a fixed-rate mortgage than an¬†adjustable-rate loan. How you choose between them depends on your perspective on the interest rate of the future.