Home Loan Finance

By: EconomyWatch Content   Date: 31 December 2009

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The mortgage industry has dozens of home loan products to offer. For an individual,  choosing a good home loan finance scheme is a daunting task. A perfect decision can bring big savings but a wrong one can lead the borrower into severe debt obligations. Understanding the home loan economy is crucial for every potential borrower.

Standard Home Loan Finance Schemes

Lenders have a range of home loan finance schemes. However, there are eight standard products. All other schemes are a derivative of one of these standard product categories.

 

They are:

 

30-year fixed rate: These are long term mortgage schemes for individuals who want to lock in single interest rate for the next 30 years. Although the interest rate can be higher, this scheme offers financial relief as the borrower can plan for the future.

 

Optional adjustable rate mortgage (ARM): These loan products are best for individuals with inconsistent monthly incomes. Here, the borrower can choose to pay less during the lean months and opt for bigger repayments in the following months.

 

Refinancing: By refinancing an existing home loan, an individual can enjoy the benefits of ARM on a fixed interest rate loan.

 

Low-term ARM: For individuals who have recently started earning, but have high income potential, opting for a one-year ARM is the best choice. Here, an individual can choose a particular interest rate for an entire year. Also, the interest rate cap prevents exceptional rise in the interest rate on the remaining debt amount.

 

Low-documentation loan: These loans do not require income proofs or employer verification. However, one has to pay high interest rate to secure a loan. It is ideal for self-employed individuals.

 

Five-year hybrid loan: Individuals who plan to stay in their homes for a minimum fixed period, say five years, can lock up interest rate for that specific term. This prevents high fixed interest rate as in a 30-year mortgage. However, if they tend to stay longer, the refinance option is always open to lower down interest rates.

 

Veteran loan: Specialized loan products are available for veterans with facilities such as no down payment and low interest rate options.

 

An individual can estimate personal loan requirements and choose any of the above loan products.

 

 

 


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