What is a Home Loan?
Owning a home can be one of the best things ever, and it is a good idea to know more about ways of owning a home and the best option for you. Lending institutions have provided an easy for people to own homes without having the cash to pay for it. One of the most common options people go with is taking a home loan. With a home loan, you will have a chance to own a home and pay for it over a period of time.
A home loan is a loan that financial institutions give and get the security over the property you are buying using the loan. The loan will be 25 to 30 years, and you need to make regular payments every month or fortnight. The loan will be paid over the contracted term. The security of the loan is the property, and this means the lender can sell the property to settle the debt if you are not able to pay the loan. Many people in the country are able to own homes through loans because of the high property prices.
There are different types of home loans. They can be classified by purpose, or the type of interest rate. The two main types of home loans using interest type are fixed rate home loans and variable rate home loans, but there are many other types.
The variable rate home loan means that the interest rate will fall and rise over the term of the loan. This can be as a result of the change in official cash rate or decision by the lender. This type of home loan will offer flexibility. You must meet the monthly requirement, but you have the chance to pay more if you want to. You will not be charged with a break fee because there is no fixed term for the break, and this means having the freedom to sell the house without paying extra fees and charges, which usually applies to fixed rate home loans. The downside is the fact that the rate can rise anytime, and can be bad if you are on a tight budget.
Fixed rate home loan is where the interest rate is fixed for a given amount of time, with 1,2,3,4 or 5 years being the most common. This type of loan comes with certainty because you know the repayments you are going to make. If you decide to sell before the end of the fixed term, you end up being charges a “break fee”.