Home Loan Types: Things You Need to Know

You are buying a new home, and there’s so much to know. To help you out and to make things easy for you, here’s a list of the most important things pertaining to the different home loan types being offered in the market today.



Home Loan Types



Variable (Principal and Interest). This type of loan is perfect for borrowers with full income evidence.



Fixed Rate (Principal and Interest). A fixed rate loan is a type of loan that has a fixed interest rate, and consequently, fixed loan repayments. The time period of these loans can vary, but you can usually "lock in" your repayments between 1 to 5 years. Normally, the fixed rate period is 3 years, but the total duration of the loan itself may be 25 to 30 years. When the fixed loan period ends, you can opt to fix the loan again for another period of time at the current market rates, or you may choose to convert the loan to a variable interest rate for the remaining time left of the loan.



Split Rate (Principal and Interest). This type of loan has one segment of the loan fixed and one segment variable, combined into a single home loan. This can be very useful especially if you are indecisive whether to stay variable or to fix your loan. With this type of loan, you can essentially do both, plus it allows you to modify your home loan to lessen the effect of interest rate changes.



Interest-Only Home Loans. With this type of home loan, you repay only the interest on the principal during the term of the loan. Then, at the end of the interest only period - normally one to five years - you begin paying for the Principal and Interest over the remaining term of the loan.



Line of Credit Home Loans. Line of Credit is also known as Equity Loans or Revolving Credit. This is how it works; with your property as security, the lender allocates you a credit limit and when need money; you simply draw against that limit. It’s normally done by writing a check, or using a special debit card. The moment you pay the loan, the money becomes accessible to you again.



This type of loan is a can be very helpful for those who needs to access the equity of their home for investment purposes, or for any other purpose such as building a new home, renovations, buying a new car, or even a holiday vacation. This type of loan can also be very useful for debt minimization.



Low-Doc Home Loans. This type of home loan is perfectly suited for those borrowers with no tax returns or financial documents to support their loan applications. This is also ideal for investors and self-employed borrowers who wish to purchase, refinance, or renovate.



Introductory home loan. This type of home loan offers unusually low interest rates to attract borrowers. This is also referred to as a honeymoon rate, which normally lasts only for 12 months or 1 year then it rises. The rates for this type of home loan can be fixed or capped. At the end of the honeymoon period, most return to the standard rates.



Non-conforming home loan. This type of loan is being offered by a lot of lenders for those people with poor credit ratings. Lenders offering this unique package are essentially willing to see past credit problems by focusing on the borrowers’ ability to pay the loan. To buffer the risk, a bigger deposit is required by the lender from the borrower, plus proof of income.



Discover here more free information, advice and tips on how to select the best home loans currently available.