Home loans and mortgage

Home loans and mortgage

Whether you are shopping for your first house or if you are moving to something better, it is better to know all the facts about home loans before making your move.

There are many kinds of loans. Mortgages are the most well-known type. A mortgage is a type of secured loan pertaining to real estate or house. The ownership of the property is with the borrower who makes repayments in installments over an accepted period of time. The borrower is required to put up a collateral (asset) to secure a mortgage. The lender is able to provide higher amounts, usually with a better interest rate, as the lender can partially or fully seize the collateral if the borrower defaults.

Fixed rate mortgages are the most commonly occurring type of home loans. The benefit is, you know ahead of time the repayment amount and the term of repayment is usually stretched over a period of 10 to 50 years. There is also a provision of repaying the loan quickly by paying additional amounts. In this type of loan, loan repayment goes first towards paying interest, then to paying the principal amount.

The benefit of opting for Adjustable rate mortgage (ARM) is that it usually offers a lower initial rate of interest than the fixed rate mortgage. The downside to it is the fluctuating nature, as the interest rate rises, so do your loan payments.

An established credit history and a preset minimum amount of down payment are precursors to opting for the above-mentioned mortgages.

FHA mortgages are government-backed loans with flexible guidelines. They usually have low down payments as well as fixed rate and ARM options. Those with limited down payment amount and having a challenging credit history can apply for FHA mortgage. This is usually offered to first time home buyers and high-risk borrowers, but the borrowers are required to take out private mortgage insurance.

There are various other kinds of mortgages, VA loans for veterans, reverse mortgages and interest only mortgages.

Refinancing your mortgage can potentially help you:

  • Lower your monthly payment costs
  • Shorten the term of your loan
  • Get cash out of your home

It is good to reassess your home loan portfolio with changing trends in the market. If your home is worth more than your current outstanding loan amount, you might be able to use your home equity to fund an ongoing need or any one-time expense like a home remodel etc. This equity can also be used to consolidate your debt and get some cash out of your home.

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