A Look At Two Types Of Loan
There are two types of loan that you can take up to get a large sum of money for your property investment or for other purposes
. This article will give you the basic details of these loans, what it entails and which loan is suitable for your needs. Here are the two loans:
Home Mortgage Loan
When you make the decision to purchase a property, either as your first home or as an investment, you will need to obtain financing for the purchase. Very few people have enough liquidated funds to be able to pay the whole sum for a piece of property. That's why financiers and banks offer mortgage loans to help new home owners pay for their new property. A mortgage loan is a loan secured by real property. This type of loan is commonly known as a mortgage. There are two basic types of amortized mortgage loans, a fixed rate mortgage or an adjustable rate mortgage. The fixed rate mortgage, commonly called the standard mortgage, has a fixed interest rate that remains the same for the length of the loan. This means if the loan term was for 15 years or 30 years, the interest rate remained the same and the monthly payments also would remain the same. The adjustable rate mortgage is different from the fixed rate mortgage as its interest rate is fixed for a length of time before it is adjusted according to the Prime rate. Initially, it is possible to have a lower interest rate compared to a 30-year fixed rate loan, depending on the market conditions. With this type of mortgage, you will be taking on the interest rate risk so it could be easier to get approval for this loan compared to the fixed rate mortgage which could be difficult to obtain or even expensive.
Then, there is the combination of a fixed rate and adjustable rate mortgage loan where the loan will have a fixed rate from the beginning and then the interest rate starts to vary according to market conditions near the end of the loan term.
Home equity loan
A home equity loan is basically a refinance of your original mortgage or a second mortgage. It is a loan that you can take by using the equity in your home as a collateral. People usually take this loan when they need a large sum of money for purposes like home repairs or medical bills. To take this type of loan, you will need to have a very good credit history and reasonable loan-to-value ratio. This loan is also tax deductible. However, the tenure of this loan is usually shorter. Before taking up this loan, it is imperative that you ensure that you are able to make the monthly repayments as it could put you in danger of losing your home if you find that you are unable to make the payments one day. Finally, before making your decision on the type of loan that you need or want to apply for, it is best that you get a complete credit report of your latest credit rating. You want a recent credit report on hand before you apply for a loan. You can also seek for a pre-approval of a loan if you have already decided on what type of mortgage and which financier you want to apply the loan from. You should also consult a professional financial counselor to gauge your financial situation and get some home loan help before applying for a mortgage or refinancing your mortgage.
by: Ask Bill
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