Home ownership has become a priority among many young working individuals and no wonder very many companies, organizations are offering home loans. These home mortgage offers have a common denominator differing mainly on the interest rate offers and the other minor technical details.
Before you embrace home loans, it is important to know the various types of home loan offers. Types of home loans There are various different species of home loans and choosing the correct breed would save you lots of bucks and years of repayment. There are three basic types of home loans based on interest rates. Fixed interest rates In this type of home loan, the rate on the principle and interests is fixed for a period of the agreed time.
The repayment is distributed in equal installments over a period of time commonly 30 years but may be of 10, 15, or 20 years. The primary advantage of fixed rate home loan is that it’s easier to budget for because the cost doesn’t change and can also be spread over a longer period for lower monthly installments. The only downside of this home loan is that the interest rate may be set higher. Adjustable rate mortgage (ARM) Unlike the fixed rate home loan where the interest rate is static, ARM interest rates change over time depending on the market economics, adjusting either up or down. This can lead to increased or reduced monthly installments. ARM offers lower interest rates on the principal and it also offers other features such as redraw option. Hybrid adjustable rate mortgage This is a type of ARM that begins with a fixed rate for a period of time but after the period, the rates begin to adjust.
The most common hybrid ARM is 5/1 ARM home loan where you pay a fixed rate for a period of five years and then the rate changes every year after that. If you want to embrace home loans, hybrid ARM is popular because it offers the lowest rates in the initial period and you can take advantage to knock down the principal amount at the period. Interest only home loan You hate upfront fee, or account deposits? You can still embrace home loans. Interest only loans are for those who need rock bottom payment. The interest only mortgage product allows you to pay the interest the first few years of the loan and after that the loan interest begins to adjust.
This product is appropriate for homeowners who are looking to increase their income in the near future such as young professionals. Government mortgages These are loans given and guaranteed by the federal government. The lender might be from the private sector but the loan gets insured by the government. Some of the government backed home loans include FHA loan: This loan is made by lenders and is insured through the federal housing administration (FHA). VA loan: This is reserved for the armed forces and their families and the insurance is managed by the department of home affairs. Before one obtains a home loan, it crucial to consider the above types and other considerations such as your income and credit score.