Alan Lim asked:
The Loan
This is a type of loan wherein the equity of the borrower’s home is the collateral. Many a times, such loans are taken to finance various things like medical bills, or a college education amongst others.
You must have an excellent credit history if you are thinking of taking a home mortgage loan. Also, the ratio of the loan to value must be reasonable enough. This loan is secured against the value of the borrower’s property and is also called a second mortgage. A second mortgage is usually of a shorter term than a first mortgage.
The Types of Mortgage Loans on Offer
The Fixed Rate Mortgage Loan: A fixed rate mortgage loan has a fixed rate of interest. The fluctuating interest rates won’t have any bearing on your loan and you can repay your loan amount at a fixed rate through a fixed period of time.
Adjustable Rate Mortgage Loan: The opposite end of a fixed rate mortgage loan. Herein, the interest rate of your home mortgage rate will fluctuate and be dictated by the various economic indices. In most cases, at the beginning of the loan period, you usually have to pay a low interest rate.
The Closed End Loan
A closed end home mortgage loan gives a lump sum to the borrower at the time of closing. No other amount is further given to the borrower. The maximum amount that can be borrowed is dependant on factors like the appraisal value of the home, income, and credit history of the borrower.
If there are no liens on the property, most often, a borrower can borrow an amount equal to the appraised value of the home. However, various states have different laws that determine the amount that can be borrowed on equity.
The Open End Loan
This offers its borrowers revolving credit. This essentially means that you as a borrower can determine when and how often will you borrow against the equity of your home. However, the initial limit of the credit line is fixed by the lender, and are available for up to 30 years, very much like closed end loans.
In most cases, the open end home mortgage loan is available at a variable interest rate.
Credibility and Choice
We have mentioned the point that your credit history would be an important factor in determining the interest rates offered to you. However, don’t just take this as a one way mode. As a borrower, you must also check the credibility of the lender. You can do so through various banking sources, consultants, etc.
Also your choice of the lender must take into consideration the comparison of offers, negotiations on the rate of interest, and other conditions. Conduct an intensive study of the market and only then choose the perfect home mortgage loan that will suit your needs.
These are just a few home mortgage loan pointers that might just be able to guide you in the right direction. So take due cognizance of what we have mentioned, and make the right choice.
KENNETH
