Low interest rate home loan
Owning a home is a dream cherished by all of us. An average man finds it really difficult to accomplish this dream for need of decent funds to buy houses or construct one in any decent locality.The experience of buying a home can be many a time intimidating. It can be devastating in the absence of prudent assistance. Most of us may find it impossible to pay in a lump sum the money required to own a home. The only thing that comes to our rescue is the availability of home loans.
You can take a home loan or in other words buy a house on finance. With the easy availability of mortgage loans for buying, constructing, and reconstructing existing homes, many have been able to realize their dreams. There are many financial institutions that offer housing loan or mortgage loan at affordable, mortgage rate. In fact, many banks and loan banking agencies, offer loan calculators that enables to maintain Interest account in case one has availed other loans. For instance, we can consolidate our housing loan or and any car loan or education loan.
Choosing your Loan
There are a number of nationalized banks and private banks which offer home loans. The trick is to find the institution that provides a home loan at a low interest rate. There are number of terms which confuse us when we decide to buy a home on loan. This is because the housing finance companies throw around words like fixed rate, adjustable rate mortgages, and balloon mortgages. If you are well aware of these words then process becomes easy for you else these words are pretty confusing.
Fixed rate Home loan
If you plan to buy a home and want to stay in it till you fully pay off the loan then a fixed rate home loan will probably suit you. Under this type of loan, you will be assigned a fixed interest rate, and then that rate will not change for the life of the loan. Fixed loans often lack the flexibility to make extra repayments and thus restricts shortening the duration of your loan.
Adjustable rate mortgage
Unlike the fixed rate home loan, the interest rate in this scheme goes up and down with the market. If the interest rate is low, the rate on your home mortgage will be low and if it\'s high, you have to pay according to the higher rate. You are left perplexed at the rapid changes in the interest rates.This type of loan doesn't suit all. Adjustable rate mortgage is mainly for those who plan to buy a house only for investment purposes and plans to sell it soon.
Balloon mortgage
In this type of loan, interest rates are much lower. Under balloon mortgage scheme, you will make monthly payments for a fixed amount of time, with a fixed interest rate. The difference is that at the end of the payment schedule, you will owe the unpaid balance in one lump sum.
The biggest disadvantage of this type of loan is that there is a huge payment due at the end.
Types of loans
By understanding the various types of home loans that are available in the market, you will be better prepared to make a decision that is just right for you and your economic condition and purpose.
. Standard Variable Loans
The interest rate can vary through out the term of the loan - both up and down. The term is usually 20 to 25 years. If interest rates fall, your repayments will come down. You have the option to fix or split your loan; can make additional repayments without incurring a penalty and the option to redraw the additional funds. It provides more flexibility than other types of loans. But if interest rates rise you will have to make higher repayments.
Basic Variable Loans
Many lenders now offer basic variable loans with lower interest rates than standard variable loans but with fewer features. Like all variable loans, the interest rate can vary over the term of the loan. The biggest advantage is price. Basic variable loans have a relatively low interest rate. Repayments are usually lower than standard variable loans. Most of these loans do not offer the same range of features or flexibility as other variable interest rate loans. They cannot be used in combination with other loans and are not portable. However, borrowers can opt to pay for additional flexibility and features.
Introductory Loans
Also called a discounted or honeymoon rate, the interest rate is usually low to attract new borrowers and normally lasts for a period of two years or less. Rates can be fixed, or variable. After the introductory period, most introductory loans revert to the standard variable rate. These are usually the lowest interest rates available on the market. If payments are made at the interest rate applicable after the introductory period, the principal can be reduced quickly. Some banks provide an offset account on these loans. Payments may increase when the initial period ends. If the introductory rate is fixed and interest rates fall you could be locked into higher rates.
100% Offset and All-in-one Loans
100 per cent offset accounts are a separate savings account attached to your home loan. The interest rate on the offset account is the same as on the loan. Any money you put in the offset account is deducted from your loan balance before interest is calculated. It operates like a transaction account and typically has a cheque facility and a cash card. The interest savings on 100 per cent offset accounts/All-in-one loans are higher than you would get on other savings and transaction accounts. Any extra money in your transaction account saves you interest on your loan, thus shortening the term of your loan. You may have to pay a slightly higher interest rate or monthly fee to have a 100 per cent offset account, you may have to have a minimum balance, such as $2,000, in the offset account for the offset effect to be calculated.
Line of Credit
A line of credit is an interest only variable rate loan secured against a residential property allowing access to funds whenever you need them. They have the added flexibility of a transaction account built into the home loan. Line of credit products are flexible ways to raise funds for investment purposes by providing cash at call up to the prearranged credit limit. You can use the money as you need it and pay it back when you can. Interest rates tend to be lower than for credit cards or personal loans. Credit limits are usually higher than for credit cards or personal loans. Unless you are careful, it's possible to reduce the equity you have built up in your home.
Home Equity Loans
Allow borrowers to use the equity in their existing property for other purposes such as renovations, investing in shares or managed funds, or financing an investment property. Interest on home equity loans are tax deductible. Usually at a lower interest rate than other loans. As with a line of credit, it is possible to reduce the equity built up in your home.
Non-Conforming Loans
Loans available to borrowers who previously have been refused finance for not meeting lenders' traditional criteria. These include, self-employed people, contract and seasonal workers, the credit impaired, senior citizens. This enable those who have been previously refused finance to obtain it. It has fully featured loan options including redraw, line of credit, variable and fixed options etc. Its often offered at a slightly higher interest rate and/or fee structure than the comparable "traditional loan". Can be inflexible especially when it comes to refinancing.
Look before you leap
Home loans are provided based on the market value, mainly estimation given by banks or the registration value of the property. Home loan is not a one-time decision. Do review the market periodically before availing them. Customers tend to make mistakes while entering into deals, which may not be beneficial for them, so better compare all the variables before signing a loan agreement by different banks. It has been observed that banks are prompt to increase the interest rates on your loan when the benchmark interest rates go up. However, often the same degree of alacrity is not shown by them in reducing your rates despite the benchmark rate going down. On that front, the existing borrowers need to take an activist approach to ensure that they benefit from the interest rate reduction just as they were affected by the interest rates rise. Always check if the downward revision in your interest cost has happened The clause of buyer-beware applies here too!
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