Getting a home loan is not less critical than buying a home. As a home loan increases the probability of acquiring the house. Generally, you cannot buy a home by paying the whole amount in cash as it becomes difficult to have that huge amount of cash on hand. Also, there are many buyers who are relatively having less income compared to other class of society and home loan provides an opportunity for them to acquire their own home as they do not have to pay the whole consideration at a time. Here are some types of home loan, by Financeshed, you must know before applying for one.
Fixed Interest rate loan
Fixed interest rate loan is nothing but locking in your interest rate for the loan tenure. The biggest advantage of this loan is that this will help you calculate your cash outflow and will assist in having budgeted cash flow. Also, your repayment will remain consistent which helps in proper planning of the repayment if in case you have a strict budget. The fixed interest rate loans are costly than other loans as the interest rates are higher than variable interest loans and you are also chargeable with an exit fee if you try to refinance during the fixed rate period. However, many fixed rate loans come with an extra repayments facility. One thing that should be considered is the loan tenure in fixed interest loan as with longer tenure comes higher interest.
Variable Rate Loan
Variable rate home loan is all about comparing home loans and taking the decision about what type of interest rate you would like to go for. The variable rates determined by your lender could change at any time during the loan period. Often these rates are changed due to change in provisions of Reserve bank of the country or any concerned economic changes. Thus when rates are low you will get benefitted but when the rates are high you would have to pay a huge amount as interest. The advantage of this type of loan is that it provides the flexibility of switching providers.
Low deposits Loans
Lenders nowadays are having restrictions as to deposit amount for a loan as well as for purchasing the house property. The lender is having restrictions around investors with some requiring a deposit of at least 20% for investment loans. If you’re purchasing your first home as an owner-occupier then there are still a range of home loans out there that are available with just a 5% deposit. But although such loans come at a low deposit, they come at a cost in the form of lenders mortgage insurance, charged by banks and financial providers when you have a deposit under 20%.
Bridge loans are ideal loans for those who are purchasing a home before selling your previous residence. A bridge loan is also called gap loan or repeat financing. A lender can merge your current and new mortgage against the property if you sold your home and willing to refinance the loan. The duration of bridge loans are shorter than any other loans but they do require finance documents of the new property. This kind of loan is ideal for those who wish to move into another home with the existing loan.