A home loan, which is commonly known as a mortgage, is a
loan taken from a financial institution such as a credit union or bank that is
paid back with interest. Putting minimal or even no money down, Home loans allows
individuals or businesses to purchase homes.
The loan lender has a contractual lien on the property until
the home loan is paid off. A few basic factors such as the loan amount, the term,
and the interest rates should be taken into consideration by the consumers when
comparing mortgage offers.
When deciding on the home loan amount for the purchase of a
home or property, a key factor is the down payment. In essence, the loan amount
is the amount of money borrowed from the credit union, bank, or other financial
institution.
You need to understand the terminology when you go to apply
for a home loan. Let's start with the most basic of terms.
Principal
The amount you borrow in order to move into your desired
home is known as the principal. When you apply for a home loan of $250,000, the
principal amount is known as the amount actually sanctioned by the bank.
Interest
Interest rate is associated with every home loan. For the
purpose of borrowing the principal from a lender, the amount he will charge in
turn is known as the interest rate.
Since there are a broad variety of home loans that have
flexible interest rates that change every year, ever few years or simply remain
set over time. Overall, you want to minimize the interest rate to the extent
that possible.
Term
The number of months you have to repay the money you've
borrowed from the lender is simply known as the term of the home loan. For
instance, a 30-year fixed rate mortgage is indicative of a term of 360 monthly
payments to be made over 30 years. Don't worry; there are home loans of much
shorter duration.
A larger down payment on a property will result in a smaller
home loan, lower monthly payments, and sometimes a lower interest rate. Smaller
down payments result in higher monthly payments and sometimes a higher interest
rate, since there is less equity used as collateral toward the property.
While opting or going for a home loan, the buyers should be
careful. They should make a thorough research of the prevailing interest rates
in the market.
Borrowers should also think about the aspect of the term
associated with the loan that he has undertaken, otherwise they may end up
paying or repaying the loan for 30 to 35 years, just due to the fact that the
loans conditions had stated that the principal amount has to be repaid on fixed
amount over 30 years installment basis.
Given below are
the basic types of home loans.
Fixed-Rate Mortgage
When considering a mortgage, this is the plain-vanilla home loan
that most people think. By means of an interest, you will owe a certain
percentage of the home loan to the lender.
This amount never changes, and all
throught the life of your home loan, your monthly payment will remain the same.
Generally, home loans given are for 15 or 30 years.
ARM
This is an "adjustable-rate mortgage." The
interest rate varies to reflect changes in the credit market out in the great,
wide world. The first-year rate (also known as the teaser rate) is generally a
couple of percentage points below the market rate.
When you're considering an ARM, consider the worst-case
scenario. What if interest rates go up, and your ARM adjusts to its maximum?
What will that maximum be, and when will it break down? Will you be able to
afford the payments?
COFI
COFI home loan is one type of ARM. COFI stands for
"cost of funds index." There will be no monthly caps and adjusts in this
home loan. Since it isn't fixed for a certain time, it is the most adjustable
ARM of all.
Hybrid Loan
Typically a hybrid home loan is fixed for 1, 3, 5, 7, or 10
years and then conv erts to an ARM. This means you get stability for a given
amount of time, and then your fate is cast to the winds of the current interest
rates.
Two-Step Loans
These home loans attempt to have the best of both worlds:
the stability of a fixed home loan with the lower rates of an ARM. They appear
in their most common forms as 5/25 or 7/23 loans.
Balloon Loans
These tend to be short-term home loans. You borrow money
for, say, three or seven years, and the loan is amortized as though it were a
30-year home loan. You owe the bank the entire remaining principal, in one lump
sum like a big balloon at the end of the three- or seven-year period.
Other Resources
Refinancing You Home Loan - "Find online deals for home equity loan rates & deals online at pay less guide."
Related Articles:
|
