Different Types of Home Loans

As expected, there are different types of home loans in the market today. They come with different features, terms, costs, and benefits. If you are considering getting a home loan, then it pays to know the different home loan types first.

Basic home loan. This is also known as the No Frills home loan. The interest rate for this type is variable and very low. However, there are no benefits or special features to be enjoyed at all. Thus, the reason for being termed as ‘basic'. The lower interest rate indicates a short term for repayment. One huge advantage here is that should interest rates fall, the minimum amount for repayment would also fall. But then again, if interest rates rise, then the repayment amount will also rise. Thus, you should check if it's possible to make additional repayments. This way, you can pay off the whole loan earlier. This type of loan suits first home buyers.

Standard variable rate loan. This loan type is more flexible compared to the basic home loan. The interest rate is variable as well. This means that your interest rates can vary as you see fit. Lower rates would then mean lower repayments for you. The catch, however, is that as interest rates rise, your loan repayments would also rise. Other features include the choice between variable and fixed rates and the choice to make extra loan payments without having to deal wit portability and penalty. This loan type suits all sorts of home buyers who want flexible repayment terms.

Fixed-rate loan. For a period of 1 to 5 years, your interest rate is fixed. Thus, you will have a fixed monthly repayment amount for that period as well. When the period ends, you can then choose another fixed rate, or you can go for variable or split interest. The main advantage here is you adhere to a specific repayment amount. Thus, you can budget your money accordingly without any surprises. However, during the fixed rate period, there's every chance that interest rates would fall. This still would not change your repayment amount, so you end up overpaying.

Equity line of credit loan. This loan type lets you borrow money against your home's equity. This loan is perfect when dealing with financial emergencies and distress. Your home's equity should be of big value so that you can borrow substantial money against it. The advantage here is there are no fixed repayments. However, if you cannot make timely payments, then you might end up paying off huge interest rates. You can even lose your house in the process because your own home is used as collateral here. Thus, this loan type suits people who have savvy budgeting skills.

Now that you know the different types of home loans and their features, you can then choose which loan type to apply for more wisely.