A home loan is sometimes referred to as a mortgage. A home loan is used to purchase a home or property. It is paid in installments over a set period of time.
There are different types of home loans. The most common type is a fixed rate home loan. First time buyers are attracted to these loans because their stable, with a monthly payment that remained fixed over the term of the loan. An average term of a loan can range from 15 to 20 years.
Adjustable rate home loans, unlike fixed rate home loans, adjust the interest rate over an initial period (between a few months and few years). Adjustable interest rates begin high during the initial period and slowly reduce in rate.
Balloon home loans are based on a 30 years amortization schedule, but the entire home loan balance is due at the end of the loan?s term, which is between five or seven years. If you cannot pay the entire home loan balance at the end of the term, then you can elect to reset the home loan at the current interest rate.
Reverse mortgage loans are a new type of loan appealing to older homeowner especially those nearing retirement. In a reverse mortgage loan, money is paid to the owner instead of charged. The owner repays the mortgage when he or she decides to sell the home or passes away.
A down payment is required when getting a home loan, and can range between 3-20%. Today, the typical amount is between 15-20% although that percentage may be reduced if the buyer?s credit history is strong, has a lot of income, or the house is not that expensive. Anyone who puts down less than 20% is required to carry private mortgage insurance (PMI) on the home loan.
The buyer will also have to pay closing costs on their home loan. The closing cost is between 3-7% of the total value plus taxes, financing, and other settlement costs. Negotiating with the lender may reduce the closing costs or you can request that the seller covers the closing costs.
Tom Martens is the content coordinator for South Arica?s leading Homeloans portal which amongst others offers Bond origination services for all major banks.
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