What Is A Home Loan?
The cherished dream that throbs in your heart is to have a beautiful home of your own. If you are already a proud owner of a home, then maybe you are dreaming to renew the worn out look of your old home. Be prepared to tread a complex path to buy a proper home or to renovate your home perfectly. Availing an easy home loan is the ideal way to buy a home. There are various types of loans you can avail of according to your needs. You can take home equity loans, home construction loan, manufactured home loans, mobile home loans, home improvement loans and interest free loans - whatever suits your want.
Home Mortgage Loan
The best way to get a home loan is by keeping that home as mortgage. Basically you have to put the home as collateral in lieu of the debt you have taken to buy that home. As you clear off the debt the home will be all yours.
There are two types of rates in a home mortgage loan. The fixed rate home mortgage loan where the interest rate and the monthly repayment charge remains fixed for the lifetime of the loan or for some specific time and then will go back to variable rate after the time lapses. This is known as Adjustable Rate Mortgage or ARM, which changes as per the market index.
In a variable rate, the market decides the rate. In a variable rate you can save money when interest rate goes lower but there are risks of hiked interest rates too, however in a specific term this is rare.
There Are Two Types Of Home Mortgages
Mortgage by demise where the lender becomes the owner of the house till the loan is fully repaid known as "redemption". This is not a very common mortgage.
Another is mortgage by legal charge where the debtor retains his legal ownership over the home. There are certain legal provisions in this mortgage to ensure and protect the right of the creditor over the property.
There Are Various Ways Of Repaying A Home Mortgage Loan
The most common is the repayment of the capital and payment of interest within a fixed time maintaining a set term. This is known as self-amortization in the U.S.
There is interest only mortgage where you don't have to repay the capital in the loan term, this is generally associated with some investment plan and has tax advantages.
For long-term borrowers there is "no interest capital mortgage" plan where you don't have to pay either the capital or the interest in the loan term. This type of mortgage is known as reverse mortgages, equity release mortgages or lifetime mortgages depending on the country. There are age limits for such mortgages because most of the time there is no repayment until the debtor dies.
There is also a partial amortization where the monthly dues are evaluated over a certain term but the due capital is calculated at some point before that term. This balloon loan is quite in vogue in the U.S.
The Main Parties In A Home Mortgage Loan Are
A creditor lends money to the buyer of the home, which is secured over the home itself. Generally banks, insurance companies and other financial organizations lend money for real estate purchase The creditor has legal right over the debt and in case of default of loan repayment within time he can take the possession of the home.
The debtor is the recipient of the loan meeting all the loan and mortgage terms. The debtor can be a man who is a homeowner, landlord or any business. The debtor borrows money to purchase a home making the debt secured by putting the home as mortgage. It is essential that the debtor repays the loan within time to avoid the possession of the home by the lenders.
Sometimes debt is referred to as hypothecation where hypothcary is needed to assist in hypothecation.
The real estate borrowing and purchases are complicated legal matters in which both the creditor and the debtor will need legal counsel. So solicitors are also an essential part of the home loan transaction.
Taking a home loan is a serious and complicated process. The buyers may need the counsel of expert mortgage brokers and sometimes they will prefer to chalk out a good plan by certified financial counselors.
Home Loan Fees
There are various home loan fees, which your creditor will charge while you take a home loan. The different fees are application fee, administration fee, lenders mortgage insurance fee, entry fee, exit fee, the settlement company will charge settlement fee and if there is a third party who is handling the loan there is another fee. There are also loan discount fees, which is the other name of the prepaid interest. The last is setting up an escrow account, usually prior to the purchase of the home, which is a savings account held by the lender. You have to deposit a monthly sum in that account out of which the lender will meet the expenses of insurance, property taxes and more.
There is a valuation fee which the banks charge for a surveyor who surveys the property and assesses it mortgage value. However, this survey is not a thorough one and you cannot sue the surveyor if he fails to notice some important problems. You can pay an extra fee to conduct a building survey by the surveyor.
Some Points To Consider Before Taking A Home Loan
First shop around and compare the different home loan interest rate of different organization and settle for the most reasonable one.
After the loan is sanctioned you should religiously pay the monthly installments. Any early extra payment will help you save double that money.
Always check the bills because there is every possibility of yours getting trapped into the net of swindlers.
How Will You Make Your Home Loan An Advantage To Your Economy?
You can use your home loan to consolidate other loans. This will help you to combine all your debts like credit card debts and other debts into one with a single nominal monthly installment to pay. Usually the interest rate is lower too.
The Benefits Are
You can save money with a lower interest rate and single monthly installment
Your credit report will get a boost
Lenders will consider you a lesser risk with a fixed low monthly installment
But you have to remember if you don't handle the huge amount of debt incurred as home loan properly you will be in serious financial trouble. In this respect, you can take the help of a reputed debt counselor to manage your debt better.
Using the home loan for home improvements is a great idea. You can increase the value of your house with constant improvements and you will earn huge profits when you decide to sell your home.
So translate your long treasured dream to become the lord or the lady of your own opulent house exploiting the valuable tips making the home loan deal clear and hassle free.---------------------------------------------------------------------------------------
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