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| About Payday Loan | Loan Types
There are several loans available now. It is important to know all of them in order to choose the best one.Fixed-Rate MortgageThis is the plain-vanilla loan that most people think of when considering a mortgage. You will owe a certain percentage of the loan as interest to the lender. This amount never changes, and your monthly payment will remain the same over the life of your loan. Loans for homes are usually for 15 or 30 years.ARM This is an "adjustable-rate mortgage." The interest rate changes to reflect changes in the credit market out in the great, wide world. The first-year rate (otherwise known as the teaser rate) is generally a couple of percentage points below the market rate. There are also upward limits above which the interest rate isn't allowed to go. This is called the cap. If your teaser rate is 4%, and you have a five-point cap, then the highest that your interest rate could go would be 9%. What's more, the amount that the interest rate can rise each year is limited, usually to one or two percentage points per year.COFIOne type of ARM is a COFI loan. COFI stands for "cost of funds index." This loan doesn't have any caps, and adjusts monthly. It is, in a sense, the most adjustable ARM of all, since it isn't fixed for a certain time. The main advantage of this loan is that the customer himself can decide how much to pay this month. He can pay less this month and more the next one.Hybrid LoanTypically a hybrid loan is fixed for 1, 3, 5, 7, or 10 years and then converts to an ARM. It means that you pay a fixed amounts for a certain period of time and then it will depend on the prevailing interest rates.Two-Step LoansIt is a combination of two loans: fixed and ARM. It combines the stability of fixed loans and low rates of ARM.Balloon LoansThese are short-term loans. It is given for like 3-7 years but you pay for it as if it was a 30-years loan. At the end of the three- or seven-year period, you owe the bank all of the remaining principal, in one lump sum -- like a big balloon. But still the rates are lower than with 30-years loan. |
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