4 Things you must consider before choosing a home loan
View PDF | Print View
by: gracymathew
If you dream of buying a new home but lack the financial resources to purchase it, then you can bank on home loans or mortgage to help you fulfill your dreams. Thus, a very important part of buying your home is planning and choosing the right type of home loan.
Some factors that you must consider while selecting your home loan are as follows.
1. Look at the principal amount that banks will lend: The amount of money that a bank will lend you to purchase your new home is called the principal. Based on your income and your credit history, every bank will tell you how much they can lend you. This estimate will help you decide which bank you should choose and also, how much house you can afford.
2. Consider the type of home loan: There are two broad types of home loans-Fixed interest rate mortgage and adjustable interest rate mortgage. In case of the fixed interest loan, you need to pay the same amount of interest each month. This has to be paid by you as long as you carry the loan. Although the risk factor in these loans is low, but the interest rates are usually higher than those of adjustable rate home loans. In case of adjustable rate mortgage (ARM) the initial interest rate is low, however, the rate is subject to market risks. There is a risk that your interest rate may increase. You have to understand the pros and cons of both to evaluate which one you should choose.
3. Determine your affordability: You must be able to pay the monthly payment with ease. Choosing a low monthly payment is not the only thing that you must look for. This is because in case of interest-only mortgages, the monthly payments may be very low, yet they may not help reduce the principal for a very long period of time.
4. Consider the term period: The duration in which your loan will be active is called term period. Although shorter terms have high rates of interest, you save a lot as you don’t have to pay the interest over a long period of time.
About the Author
Gracy Mathew is a contributing financial writer of Homeloandebts. She provides Information on home loans and debt related issues and has also written many articles on topics related to finance.
Rating: Not yet rated
Login to vote