Helping Lift the Home Loans Haze
So...you're about to buy a property and need a home loan...
Where do you begin?
Whether you are a first home buyer, have bought and sold several
times, are re-financing, seeking an equity loan, or even a
reverse motgage - there are a lot of thing to consider...
Do you choose fixed rate, variable rate, adjustable rate - or
interest only. Rates, fees, costs - can all vary.
Let's have a look at the differences:
Fixed Interest Rate - usually fixed for the life of the loan,
say 15-30 years, regardless of increases or decreases in market
rates. This type of loan is ideal for those on a budget - as you
always know what your repayments are.
Adjustable (Variable) Interest Rate - this type of loan allows
the interest rate to be adjusted according to the current market
rates -usually adjusted at the end of pre-determined periods.
These tend to have lower monthly payments and are more flexible
than fixed.
Balloon Loan - this is fixed amount payments for a period of
time and then one large payment (balloon) towards the end of the
term.
Graduated Payment Loan - this is where the payments start off
small and gradually increase.
Interest Only - this type of loan is usually only for a
specified time - where interest only is paid - so the principal
is not reducing. Usually only used for a short time, or to
finance a second property.
Second Mortgage - this is based on the amount of equity you have
in your home. Usually used for home renovation, to consolidate
debt or to purchase a second property. Usually set payments at a
fixed interest rate. Be aware that interest rates are usually
higher.
Home Equity Loan - this is borrowing against the equity in your
home. It is often used to finance home renovations. Interest
rates can vary, as can the fees and term - it is a very
competitive market - so do your homework. This loan can have tax
advantages - however, your home is up as collateral.
Reverse Mortgage - also known as 'equity release'. This is for
seniors to convert the equity in their home to cash. Repayments
are not required until they permanently move, sell, die or reach
the end on the loan term.