What are the different types of home loans?

So you want to buy a new house or renovate an existing one? Well,
there are several kinds of home loans to choose from!

Types of loans

Two different types of loans are available for home financing; fixed
and variable. You should understand the terms and conditions, future
payments, and the risks associated with each type of loan.

Fixed rate home loans

Fixed loan rate spans over 1-5 years and has fixed monthly
installments. This plan favors you if the interest rates rise over
time. You will still be paying a lower rate. But, if the rates fall,
you will have to cope with a higher interest rate.

Variable rate home loans

Interest rates for these loans vary over the payment period. The five
available types of variable rate home loans are mortgage, refinance
loan, standard variable rate, construction loan and line of credit.

Standard variable rate is the most common form of home loan. It has
redraw capacity and also enables phone banking. You can make extra
payments for the loan without incurring any penalty.

Mortgage: This loan type can be used to buy a new home. Sometimes it
is referred to as the purchase mortgage. These loans are customized so
that you can purchase the home you have always dreamt about. The loan
is extendable to a period of 10 years. You should avoid choosing the 100% financing
option for these loans. Try to put down at least 10% of the loan as down payment.
Second mortgage is a loan for emergency situations. The loan value can
go up to 100% or even 125% of your home value. It is used in
emergencies because this ties up all the equity you possess. It is
difficult to cope with fiscal deficits because the interest rates are
very high. Home equity loan is the same as a second mortgage loan.

Refinance loan is the loan used to get a lower rate for home finance.
It helps you in paying off the home debt you previously had. You
should ensure that the advantages of your refinance outweigh the loan
itself.

Construction loan is used to finance building a new home. It completes
in ten years. Mostly, the middle income families opt for this loan.

Line of credit is a revolving account with your home as the
collateral. It works like a credit card. If your money for house
building falls short, you can take out money from the available credit
line. Businesspeople mostly go for this type of home loan.

So, before applying for a homeowner’s loan, make sure you are informed
about all the fine points of different types of home loans. Get complete
information about the fees and fines as they vary from lender to
lender. Be careful while choosing the type of loan as this will affect
your future economic conditions.

Related posts:

1. What Is a Fixed Home Mortgage?
2. What Are The Different Types Of Mortgage Loans?
3. Is It Easy to Obtain Home Loans With Bad Credit?
4. Can I Find A Home Loan With Bad Credit?
5. How Does a Mortgage Work?