An individual will go in for a home loan to pay for a new house or to consolidate several debts and thereby ease his financial burden. Whatever the reason a person goes in for a home loan, he must have some basic facts in hand before taking the plunge. Set aside a budget for the home that you can be comfortable with, find a house to suit this budget, find out how much you will need to borrow in order to finance your purchase and finally, how much the purchase will cost by way of monthly payments.
It is always important not to stretch your budget to the limit but be comfortable with your payments. Many unforeseen tragedies can occur in the future like an accident that can render you incapacitated or loss of a job. Use a home loan calculator that can give an accurate estimate as to how much to borrow, interest rate and monthly payments. Most leading lending institutions will have a free home loan calculator available on their websites that customers can use to calculate home loan rates. Just enter the relevant information in the boxes provided and you will get an instant result.
Remember to shop around for different lenders so that you can get the best home loan. Your realty amount will depend on your current income, credit history, existing loans and interest rates. Here are some basic methods to go about seeking a good realty mortgage: - Find a real estate agent, get a good lender and then fill in the realty mortgage application. Once this is done, you can get an estimate of closing costs, interest rates, terms and conditions of the specific loan program that you have chosen. Next, compare the various costs of different lenders if you have still not settled on one.
In order to get the best realty mortgage, you must negotiate for a better deal with the lenders. After you are satisfied with the deal, provide require documents that they will ask for like salary details, address proof, credit history etc. Once the loan gets approved, the buyer will have to sign all the necessary loan papers. Give a check for the down payment amount and your mortgage comes into effect and you can complete your transaction and possess your new home.
While a real estate agent can direct you to a good realty mortgage, it is better that you familiarize yourself with the different types of mortgages available so that no one can dupe you and you can make an informed decision. With this in mind, let us look at the different types of mortgages available for borrowers:
• Fixed rate mortgage (FRM)
• Adjustable rate mortgage (ARM)
• Interest only mortgages
• Balloon mortgages
• Reverse mortgages
ARM and FRM are the two basic mortgage loans available. A fixed rate mortgage is suitable for those with a steady income and who do not want surprises. The interest rate will remain fixed for the entire mortgage period and so will the monthly payments. Adjustable rate mortgage on the other hand is dependent on current market trends. If interest rates are low then payments are correspondingly low and vice versa. This type of loan can be suitable for those with lesser monthly expenses and those who can afford to speculate.
Apart from this, the ARM attracts lower initial interest rates than an FRM. With the interest only mortgage, the borrower will have to pay only the interest amount for an initial fixed period and not the principal. Once the interest-only pre-fixed period ends, the monthly payments will shoot up since the principal will have to be repaid. This is useful for those who feel their future salaries can grow and expenses reduce. Balloon mortgages are usually taken for a 5-10 year time when small payments are made during the period.
Once the balloon period ends, the remainder of the mortgage will have to be paid. Many borrowers opt for this scheme and when the time for the balloon mortgage to end comes, they will either sell their home or go in for refinancing. Reverse mortgage is meant for senior citizens whereby the lender will pay the borrower every month a certain amount based on the value of the house, interest rates, age of the borrower etc. As long as the owner lives in the house, he receives payments. If he moves out, sells or dies, he or his spouse must either repay the full amount to the lender or the lender can take over the house.
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