Home Bank Loan

By: EconomyWatch Content   Date: 17 December 2009

About The Author

EconomyWatch Content

Follow The Money

EconomyWatch, Content Team

 

  • Dot Div
  •      

Buying a new home is a lifetime investment for many people, since it requires long-term financing. Banks and loan agencies offer various home financing options in the form of home loan products. Home buyers should consider taking the advice of mortgage brokers regarding the various interest rate and installment plan options to find one that will suit their financial circumstances. They should also understand the types of interest available and the factors to consider before taking a home bank loan.

 

Home Bank Loan: Categories

If broadly categorized, there are two types of home loans, i.e., fixed rate loans and floating or variable rate loans.

 

Fixed rate loans: A loan on which the rate of interest does not fluctuate is called a fixed rate loan. In other words, the interest rate on the borrowed money i.e. the principal remains same for the first few years. It is beneficial to opt for a fixed rate loan when the interest rate is low due to certain economic conditions in the market. People who want to have a fixed budget for the first few years can opt for a fixed rate loan because even if the interest rates in the market fluctuate during that period, there will not be any change in the fixed interest rate.

 

Floating or Variable rate loans: These loans are subject to fluctuations in the economic scenario. It may be worthwhile to note that banks do not immediately bring the interest rates in favor of the home owner if the market takes a plunge. Conversely, banks quickly increase the interest rates to save on their losses. Before making any adjustment to the lending interest, banks are under obligation to notify the borrowers in advance. In the same way, homeowners have also been provided the right to readjust their financing options.

Home Bank Loan: Basic Considerations

 

Here are some basic factors to consider before applying for a home loan:

 

  • The monthly installments that a borrower requests on the home loan must not be more than 35% of his/her net income per month before local tax deduction. The same applies to car loans or personal loans.
  • One should ensure to keep some savings to handle unforeseen circumstances.
  • In case, the state or country where one resides allows for government interest free loans, it is ideal to find the limited percentage one can utilize.
  • If a borrower is unable to pay or defaults on installments on time, the bank may recall the loan or even confiscate the property bought.
  • The borrower may be declared bankrupt, if the sale of reposed property does not fetch enough money to compensate for the loss borne by the bank.

  • Dot Div
  •      

Most Popular in Home Loans

Related Links
blog comments powered by Disqus