bank and loanPPT
Types of LoansFixed-Rate LoansFixed-rate loans carry an interest rate that re...
Types of LoansFixed-Rate LoansFixed-rate loans carry an interest rate that remains unchanged for the entire term of the loanThe borrower knows the exact amount of each period's interest paymentas the rate is fixedThe risk for the borrower is limitedas the rate does not move up or downHoweverif interest rates drop significantly during the term of the loan, the borrower misses out on the opportunity to lock in a lower rateVariable-Rate LoansVariable-rate loans have interest rates that can change over the term of the loanThe rate is typically tied to a market indexsuch as the prime rate or the yield on a government securityThe risk for the borrower is higher because the rate could increase during the loan termIf interest rates dropthe borrower could refinance at a lower rate and save moneyLoan ProcessApplication and ApprovalApplicationThe borrower fills out an application with the bank or lending institution detailing income, credit history, and other relevant informationUnderwritingThe lender evaluates the application and conducts a credit investigation to ensure the borrower's ability to repay the loanApprovalIf the borrower meets the lender's underwriting criteria, they receive approval for the loanClosing and FundingClosingThe borrower signs loan documents, including the promissory note, deeds of trust, and other relevant documentsFundingThe lender disburses the loan funds to the borrower. The funds may be sent directly to the seller (in case of a purchase) or held in escrow until the loan terms are metLoan Amortization and PaymentsLoan amortizationThe borrower's monthly payments typically cover principal reduction, interest, and any escrow or insurance paymentsPrincipal reductionEach month, some of the principal (original loan amount) is repaid, reducing the outstanding balanceInterest paymentsThe borrower pays interest on the outstanding principal each periodEscrow or insurance paymentsIf applicable, these payments cover taxes and insurance (such as homeowners insurance)
