Home loans are often referred to as mortgages. Home loans are needed in order to purchase a home or property. The mortgage is paid in installments over a set period of time.
There are different types of home loans. The most common type is a fixed rate home loan. First time buyers are attracted to these loans because their stable, with a monthly payment that remained fixed over the term of the loan. An average term of a loan can range from 15 to 20 years.
Adjustable rate home loans, unlike fixed rate home loans, adjust the interest rate over an initial period (between a few months and few years). Adjustable interest rates begin high during the initial period and slowly reduce in rate.
A third type of home loan is the balloon home loan. In a balloon home loan, the monthly payments are based on a 30 year amortization schedule, but the entire home loan balance is due at the end of the loan?s term, which is either five years or seven years. If you cannot pay the entire home loan balance at the end of the term, then you can elect to reset the home loan at the current interest rate.
Reverse mortgage loans are ideal for older homeowners, as the owner receives money instead of making a monthly payment. The reverse mortgage does not need to be repaid until the home is sold, the owner dies, or the owner no longer uses the home as his or her primary residence. To apply for a reverse mortgage, you must be over 62 years of age and define the home as your primary residence.
A down payment is required when getting a home loan. Depending on the type of home loan, the required down payment is usually between three percent and 20 percent of the home?s total cost. The buyer?s credit history, income and the home?s cost can also influence the amount of down payment required. Anyone who puts down less than 20 percent is required to carry private mortgage insurance (PMI) on their home loan. This protects the bank if the home owner defaults on the home loan.
The buyer will also have to pay closing costs on their home loan. The closing cost is between 3-7% of the total value plus taxes, financing, and other settlement costs. Negotiating with the lender may reduce the closing costs or you can request that the seller covers the closing costs.
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