How to Get the Best Deal on a Home Loan

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Many people dive into home loan shopping without really realizing what they may be getting themselves and their families into. You've got bad credit, and you want to get a new home. You know it will be darn near impossible to get a good deal on a home with your bad credit so decide that the best strategy is to call every mortgage broker in town to find out what the rate of the day is. Is that the best way to get the best deal on a home loan?

Before I delve into what your options are, let me first define what a home loan is. Generally, a home loan, also known as a mortgage, is loan taken out by a borrower to purchase or refurbish a property. If the borrower fails to make his or her home loan payments, the lender has the legal right to foreclose on property that is used to secure the loan.

When you do get a home loan, you will have the option of choosing a fixed or adjustable rate loan. What's the difference? A fixed rate loan has an upfront-stated interest rate that does not ever change over the life of the loan. An adjustable rate loan's interest rate is linked to an index and fluctuates in tandem with that index. There are benefits and pitfalls for both options.

A fixed rate home loan is beneficial because you will never have to wonder what your interest payment will be, and if the index skyrockets, your interest rate will still stay put. However, interest rates may go down at some point in the future, and if you have a fixed payment, you will not be able to benefit from these changes.

An adjustable rate loan can be risky if you are not prepared for rate increases. If your rate is tied to an index that is unstable, you may be in for a wild ride. A lot of home owners who can not afford their homes if they were to stay on a fixed rate mortgage are in distress now due to the increases in their mortgage payments as a result of their limited understanding of adjustable rate mortgages.

Before you shop for a home loan it is important that you speak with an objective third party in the mortgage industry who can share insider secrets on how you can avoid paying high closing costs, high interest rates and avoid getting ripped off my unscrupulous mortgage brokers, loan officers and lenders.

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Source by Chris Simons