Home Loans |
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Home loans sit very much in the same field as secured loans
in that they are available for most any purpose and rely upon
the security of a property. So homeowners can start making
those big plans.
There are essentially two kinds of home loan, repayment only
and interest only. Interest only home loans consist of monthly
repayments that consist only of interest payments. The capital
repayments are paid into an alternative vehicle such as an
endowment policy, ISA or pension scheme, it is this repayment
vehicle that repays the lender with the capital at the end
of the home loan term. Each type of repayment method has its
bonuses, though it is important to choose what is right for
you.
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When taking out a home loan/ mortgage you will need to give careful consideration
to the interest rate. With fixed rate home loans the interest rate remains
at a fixed constant level for a certain length of time, regardless of
market fluctuations. At the end of the fixed rate term, the interest rate
returns to the lenders standard variable rate. Variable home loans consist
of interest rates that will constantly vary according with market conditions.
A capped rate home loan is when a lender caps the repayable interest
rate at a maximum level; if the SVR drops below the capped rate, the interest
payable are based on the lower variable rate whereas if the SVR rises
above the capped rate, the interest payable is based on the capped rate,
and not the higher SVR.
A discount rate home loan features a variable interest rate, but with
a fixed discount for a certain period of time e.g. a variable rate of
5% with a discount of 2% means that the interest payable is 3%. The discount
value of 2% remains constant regardless of the variable rate.
The repayment only method, on the other hand, consists of capital repayments
and interest charges, much the same as the payment process for paying
back a normal personal loan. The advantages of this type of home loan
are that you can pay off lump sums, thus reducing the interest and capital
amounts repayable. Another benefit of this type of home loan is that,
come the end of the repayment term the borrower is secure in the knowledge
that the home loan has been totally repaid. There are drawbacks in this
type of home loan/ mortgage, due to the fact that the bulk of the loan
payments made early in the repayment term consist mainly of interest payments.
A borrower that moves home frequently might find this type of home loan
a disadvantage as little of the actual home loan/ mortgage gets repaid.
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