There are four main types of credit: home loans (mortgages, as they are called here); car loans; student loans; and personal loans, for your personal needs.
As you probably already know, interest rates have been at record lows in recent years, something the U.S. hasn’t had in maybe 20 years. But now they’re slowly going up. And as far as the home loan is concerned, there are fixed rates, that is, fixed rates; there are adjustable rates, floating rates.
The fixed rate is most often for a 30- or 15-year loan. A 30-year loan now has a 4.125% interest rate, and a couple of years ago it was 3 something, and that was the lowest interest rate ever. The fixed rate for a 15 year loan contract is now 3.375%, the floating rate is 3.125 to 3.25%. Let me explain a little bit about the difference between types of interest rates. So, a fixed rate. You sign a contract, take out a loan and for 30 or 15 years you pay a fixed amount, that is you won’t pay more under any circumstances. Floating rate. When you sign an agreement it says that you have to pay that particular interest rate for 10, 5, or 7 years; after that the bank has the right to raise the interest rate. The extent to which it can go up every year is stipulated in the contract. In fact these loans are advantageous to those who are planning to pay everything off within this fixed period, or are going to sell the house before the end of this period. The most common type of loan is taken by people who come from out of state, for example. They want to buy a house, work for a few years, then sell it and move somewhere else. In this case a floating rate is better than a fixed rate, because the interest rate is lower.
If you’re going to sell the house in three to five to seven years anyway, it doesn’t matter. But if you intend to live in it and won’t be able to pay off the loan within a certain period, then the interest rate on the loan will greatly increase; it will be unprofitable. If you’re looking at 15, 20, or 30 years, a floating-rate loan is much less profitable than a fixed-rate loan. Let’s talk a little bit about refinancing. A couple of years ago, and now, as long as interest rates are low, a lot of people refinanced the loan to reduce payments to the bank. And, by the way, we did that just a couple of months ago, too, by refinancing our loan.
As you may recall, I talked in one of the videos about how we bought our house. We had a relatively high interest rate at that time on the market price because we were taking out an additional loan from the city. And it just so happened that neither banks nor other lending institutions worked with that. We didn’t have to choose much, our interest rate on the loan was 4.75. Now we have refinanced and are paying 4.25. Our monthly payments are about $150 less. So, when it comes to refinancing, a little bit higher rate, fixed for 30 years is 4.25, for 15 years it’s 3.5, and for 15 years it’s 3.25 to 3.375. A little bit ahead of the curve, I will say that details about refinancing a loan will be in the next video. Sometimes refinancing is done when there are problems with funds and a person wants to reduce the payment on the loan. For example, if he has been paying off a home loan for 5 years and is paying $1,800 a month, then if he does refinance for 30 years, the remaining unpaid amount will be spread over 30 years ahead. That is, the person will pay off the loan for another 30 years, but the monthly payment amount will drop. For example, he would pay $1,600 or $1,500, depending on the amount owed and the interest rate. This is one of the reasons why people refinance.
So let’s move on to the car loans. They have a very low interest rate. I don’t know how much it used to be, but even now it’s pretty low. Very often there are deals, good deals.
If you buy a new car, very often there is a 1% credit or even less, 0.5%. This applies to certain models and brands, does not mean that you can take a loan on these terms for any car. Most often it is a Toyota Camry or Honda Accord, Honda Civic. If you want to buy another car that does not fall under these conditions, the interest rates will now be announced. I will say right away that they are not the same for everyone, it depends on your credit score, credit history, everything is individual. When you are offered a loan, they will take into account all aspects and choose the one which is right for you. What they are willing to give you.