Home LoansIf you're going to buy a new home, you have the choice of applying for a fixed-rate or variable-rate home loan. To make the process less stressful, it pays to know the difference between the two options. 

Taking a mortgage is a big financial commitment and choosing the right one makes all the difference. So if you’re planning to a take a home loan in Salt Lake City, industry expert americanloans.com suggests comparing the fixed-rate loan with the variable-rate loan to find out which suits your needs. 

The Basics of a Fixed-Rate Loan

With a fixed rate home loan, the rate of interest remains unchanged for the period of your loan program. This gives you the benefit of knowing exactly what your repayment amount will be every month. In fact, it will make budgeting easier.

If the rate increases in the market, it won't affect you. If the rate drops, however, then you will stand to lose. Extra repayments are not allowed with some fixed rate loans. You might also end up paying a break fee if you pay off the loan before the set period; for instance, if you sell your home. Don't hesitate to get some help if things get overwhelming. 

The Rules of a Variable-Rate Loan

In a variable rate loan, the rate varies according to the movement of the market. You have a base rate with a floating element that varies with the market’s fluctuation. This means that when the rate goes up, you pay more and vice-versa.

Variable rate loans offer more flexibility, in the sense that you can make extra repayments and if you face a cash crunch, you can borrow money back from the extra repayment. A variable rate home loan makes more financial sense because they are cheaper than fixed rate home loans and even if the floating rate goes up, it will not remain so for the entire period of the loan.

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Now that you know the pros and cons of each type of loan, you can choose one depending on your budget.