The real estate market has evolved dramatically for the past five years, bringing with it very many home mortgage loan options that tend to be confusing to consumers. This article looks at the basic repayment options. You will most definitely come across such terms as fixed, variable rates, jumbo loans, interest only etc. Perhaps the simplest way to bring some clarity in the seemingly endless options is to look at ways of repaying the mortgage loan. This way, you will have a better idea of what it will cost you and whether or not you’re able to meet the obligations of repaying the loan realistically.
The commonest mortgage repayment plan is that which combines capital plus interest over time such as the 30-year period repayment mortgage that features a fixed rate of interest. It requires you to make a monthly payment for the entire loan tenure whereby part of the monthly payment goes to reduce the principal amount and the rest covers the interest. At the start of the loan, the amount applied to the initial debt is normally very little but will grow and increase as the years progress.
Another mortgage option that’s rocking the real estate market by storm is the one that focus on payment of interest. Even though they bear different names, the basic thing here is the omission of the principal from the repayment process. This means that your monthly payments will go towards the loan interest and not the principal. These types of loans have an advantage because consumers are eligible for larger loans and the monthly payments are considerably reduced. However, the loan will only benefit you if your home appreciates considerably, otherwise you will not create any substantial wealth.
A rather common, although risky scheme is the balloon loan. This combines the interest only as depicted in the preceding paragraph with a principal call meaning that if for instance the loan tenure is to last five years, during the five-year period you will be making interest only payments but after the tenure is over, the loan is called and the total amount will be payable. Your option here would be to either refinance or sell the home once the loan comes due. The most likely setback however is that the loan might not have appreciated enough, in such a case you might lose the property or stick with a bad deal.
But when all is said and done, outlining the modern day mortgage home loans isn’t as confusing as it may appear to the naked eye, so to speak. Your main task would be to establish what you’ll be expected to pay back, how it will take effect on the loan, and the duration of the loan tenure.
The commonest mortgage repayment plan is that which combines capital plus interest over time such as the 30-year period repayment mortgage that features a fixed rate of interest. It requires you to make a monthly payment for the entire loan tenure whereby part of the monthly payment goes to reduce the principal amount and the rest covers the interest. At the start of the loan, the amount applied to the initial debt is normally very little but will grow and increase as the years progress.
Another mortgage option that’s rocking the real estate market by storm is the one that focus on payment of interest. Even though they bear different names, the basic thing here is the omission of the principal from the repayment process. This means that your monthly payments will go towards the loan interest and not the principal. These types of loans have an advantage because consumers are eligible for larger loans and the monthly payments are considerably reduced. However, the loan will only benefit you if your home appreciates considerably, otherwise you will not create any substantial wealth.
A rather common, although risky scheme is the balloon loan. This combines the interest only as depicted in the preceding paragraph with a principal call meaning that if for instance the loan tenure is to last five years, during the five-year period you will be making interest only payments but after the tenure is over, the loan is called and the total amount will be payable. Your option here would be to either refinance or sell the home once the loan comes due. The most likely setback however is that the loan might not have appreciated enough, in such a case you might lose the property or stick with a bad deal.
But when all is said and done, outlining the modern day mortgage home loans isn’t as confusing as it may appear to the naked eye, so to speak. Your main task would be to establish what you’ll be expected to pay back, how it will take effect on the loan, and the duration of the loan tenure.
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