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When buying a home, you need to take a home mortgage
loan, either because as a debtor, you end up paying
less tax, or because in a market where property prices
rise faster than salary levels, the money you have saved
falls short of the amount required.
When buying a home, you need to take a home mortgage
loan, either because as a debtor, you end up paying
less tax, or because in a market where property prices
rise faster than salary levels, the money you have saved
falls short of the amount required. When searching for
a home mortgage loan, you can select from a wide variety.
Study the types of mortgage loans available in the market
and note the interest rates for each before you sign
any documents. You can select from the following:
Fixed rate mortgage loans charge you the same rate
of interest over a period of 15 to 30 years. You pay
a high rate of interest over the tenure of the loan,
because neither you nor the lender can take advantage
of interest rate fluctuations, but you pay the same
sum each month. This is an excellent option if you are
on a fixed income or a salary. You begin by paying off
the interest first and the principal later—as
most of the loan is paid off, your equity in the house
increases as compared to the lenders. When selecting
a fixed rate mortgage, check the interest rates offered
for fixed rate mortgages, select the loan tenure based
on your repayment capacity, and ensure that you are
not penalized for prepaying your loan.
Adjustable or variable rate mortgage loans (ARMs) are
mortgage loans for the same period of time as fixed
rate mortgages, where the interest rate changes based
on market trends either annually, or every three, five,
seven, or ten years. Although ARMs are considered risky
due to the floating interest rate, the amount you pay
as interest on the mortgage loan is lower as compared
to that paid for a fixed rate mortgage loan. If you
select an ARM when interest rates are high, you will
pay off your loan with a slightly lower interest rate.
Ensure that a periodic rate cap and a loan lifetime
rate cap is included as part of the loan agreement—these
will ensure that your rate does not rise or fall more
than two percentage points in a period and does not
rise or fall more than six percentage points during
the mortgage loan tenure.
Balloon mortgage loans have three to ten year tenures,
during which you pay the same amount each month. At
the end of the loan tenure, you pay off the balance
of the mortgage loan as one lump sum. Balloon mortgage
loans are available at fixed or adjustable rates, but
are considered highly risky because you end up paying
off the interest on the mortgage loan and not the principal,
and you stand to lose both the property and the money
paid to date to the owner if you cannot pay off the
loan balance at the end of the tenure or get refinance.
If you want to save money by paying a lower rate of
interest, are buying properties when interest rates
are high, are sure of purchasing the property you want,
are confident of refinance options when the balloon
is due, or have no other choice, select a balloon mortgage
loan.
This information should help you select the right mortgage
loan. Check interest rates carefully before buying and
you should be all right!
Joseph Kenny is the webmaster of the loan information
sites http://www.selectloans.co.uk/
and also http://www.ukpersonalloanstore.co.uk.
At the Personal Loan Store you can find some of the
latest secured home loans explained in detail.
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