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Types of home loans

The process of getting home loans has become much easier now-a-days. Many institutions offer different types of home loans while competing with each other to attract the clients. Lenders rates may differ according to the type of home loan you prefer and the institution that offers.

 

Types of loans : There are seven different types of home loans generally asked for. Of them, following four types of home loans are mostly preffered.

 

1. Basic home loan
2. Standard variable rate loan
3. Fixed rate loan and
4. Equity line of credit loan.

 

Basic home loan :Basic home loan is also known as no frills loan. As the name suggests, this loan is especially meant for the person who buys home for the first time. Basic home loan is offered at a comparatively low rate of interest. However the amount of repayment is variable based on the rate of interest. If the interest rate is low then the amount of repayment will also be low but if the interest rate is high then the repayment amount will also be high. Therefore based on the interest rate, the amount will be fixed. The person who wants to buy home for the first time should enquire about the current rates in the market and then apply for the home loan.

 

Therefore, basic home loan is one of the cheap and best type of home loan. Nevertheless, it also has a limitation. It is not as flexible as all other home loans. When the interest rates rise, you should be able to pay the higher repayments. Else, you should wait until the rates decline or you should make the repayments faster.

 

Standard variable rate loan : Standard variable rate loan is also just like the basic home loan but this loan is more flexible than the other is. Like the increasing and declining rates in basic home loan, standard variable home loan has also variable rate of interest. If the interest rate lowers, repayable amount will decline and if the rate of interest increases, the repayable amount increases. This loan is flexible in the sense that buyers are either given option to make a choice of a variable or fixed rate of interest. Whichever suit them, the buyers can register it on beforehand. When you choose fixed rate of interest, even when the interest rates rise, you will have to repay the amount for the previous interest rate that you have registered. In addition, you can also make additional payments in order to lessen the monthly repayments. Therefore, people highly prefer this type of home loan. Standard variable rate loan is especially suitable for the home buyers and others who opt for refinancing. The only limitation is that when compared to basic home loan, this loan is offered at a little bit higher rate of interest.

 

Fixed rate loan : Fixed rate loan is one of the most flexible methods among the several types of home loans. In this method, you can fix up the interest rate for the period of one to five years. The rate will remain constant throughout these five years. Even if the rate rises, you need not worry about the higher repayment. You have to pay the same amount that you have paid before. This is the greatest advantage of this type of home loan. If the term duration gets over, you can fix another plan as according to the rates in the market. Nevertheless, there is also a disadvantage in this method. If the rate of interest decreases during this five year, you will not be benefited. You have to pay the amount that you have fixed. Another thing is once you have fixed in the plan for five years, you cannot change it in the middle. You have to carry on your payments until the plan gets over. This method is meant for the persons who are worried about increasing interest rate and the borrowers who are in need of fixed repayable amount. Therefore, make proper decision before signing up the contract and choose the appropriate plan that suits you the best.

 

Equity line of credit loans : Equity line of credit loan is suitable for people who possess the budgeting skill and strong feel of discipline. In this, you can make use of the homes equity for other investment process like stocks and funds. You should have a big deposit or your home should have a good equity to get this type of home loan. This loan has a greater advantage that is whenever you are in need of money you can approach the lender. You need not apply for separate loan. The amount you get will be added to the previous amount that you have got. This is highly costly affair because your delayed payments will increase the interest rate and you will be caught in the mortgage for ever. If at all you are in need of urgent cash, you can choose this type of home loan. Else, it is not much advisable.

 

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