Home Loans, Refinance, Home Equity

Home Loans – A Basic Introduction

The most popular method of financing a home purchase is with a mortgage. This is a loan that is secured over the home. There are a number of different suppliers and you will have to shop around in order to get the best deal. Given that your home is probably the single biggest purchase you will make in your lifetime, you must make sure to take the care and attention that the transaction merits. Mortgage rates can vary greatly from lender to lender and the amount your rate is set at can make a huge difference to the amount your repayments will amount to. Even small difference in rates could save you thousands of dollars or allow you to have your home paid off years sooner. So do your homework.

Fixed or Variable

When looking for the best loan, there are certain terms you will need to be familiar with. For example, mortgages generally come as either a fixed rate mortgage or a variable rate mortgage. The fixed rate loan will keep the same interest rate and monthly repayment for the whole lifetime or term of the loan. This will generally be for a period of 10, 15, 20 or 30 years. If the rate is fixed for a period, such as the first 2 or perhaps 5 years, and then reverts to a variable rate it is known as an adjustable rate mortgage or ARM.

When the ARM rate becomes adjustable, it will move up or down periodically according to a specified market index. These can include the Prime Rate, the LIBOR or the Treasury Index among others.

With the adjustable rate, some of the risk of changing interest rates that would otherwise fall on the bank is transferred to the borrower. They are therefore cheaper averaging somewhere between 0.5% to 0.2% lower than a 30-year fixed rate mortgage. If the rate is particularly volatile or difficult to predict than a fixed rate mortgage may not even be possible.

In the majority of cases, the savings of an ARM outweigh the risks of a rising interest rate. Especially where the mortgage is for ten years or less.

Fees

Lenders may charge various fees when giving a home loan or mortgage. These include entry fees; exit fees, administration fees and lenders mortgage insurance. There are also settlement fees (closing costs) the settlement company will charge. In addition, if a third party handles the loan, it may charge other fees as well.

Banks usually charge a valuation fee, which pays for a surveyor to visit the property and ensure it is worth enough to cover the mortgage amount. This is not a full survey so it may not identify all the defects that a house buyer needs to know about. Also, it does not usually form a contract between the surveyor and the buyer, so the buyer has no right to sue if the survey fails to detect a major problem. For an extra fee, the surveyor can usually carry out a building survey or a (cheaper) "homebuyers survey" at the same time.

Home Loans Use For Maximum Benefit

While home loans can put you in serious debt if you don't use them properly, there are a number of ways you can use them to work to your advantage. In this article I will go over some things you can do with your home loan to improve your personal finances. The first thing many people do is use their home loans to consolidate other loans they have.

Home Loans are Cheap!

While this is a common method that is used to lower monthly payments, there are also some risks involved. Home loans are good because they can allow you to combine your credit cards and other loans into one monthly payment that may be lower. The interest rate may also be lowered as well. At the same time, this may not always be the case, and some people use their home loans for consolidation only to find that the interest rate is higher. It is important to do your research to make sure you bills will be lower once you've consolidated your debt.

Loan Consolidation

In addition to the money you will save with a home loan, you will also have more income at your disposal. This money can be saved or you may choose to invest it. Using a home loan for debt consolidation can also improve your credit over the long term, because your low monthly payment will make you less of a risk to lenders. When you have a large amount of debt, your credit could end up damaged. However, homeowners who don't exercise discipline could find themselves in more debt. You may also want to look at debt counseling service to learn how to keep your debt under control.

The One and Only

Once you have used your home loan to consolidate your debt, it may be a good idea to begin using cash as much as possible. If the home loan is still outstanding, avoid taking out any more loans. Another great use for home loans is home improvements. Your house is an investment, and the more you put into it, the more you will get back. Adding improvement to your home can greatly increase its value, and you could earn a lot of money if you decide to sell it one day.

Drawbacks of the Home Loan

The only problem with home improvement is making the wrong choices. You want to spend money-improving areas that will greatly increase the value of the home. Remodeling either the kitchen or bathroom will bring the most value to your home. You want to make sure the improvements you make enhance the beauty of the home. While adding carpet and paint to the home won't greatly increase the value, it will make the house easier to sell if it is done properly.

However, it is important to remember that lenders who know you are trying to sell your home are not likely to give you a home loan. If they do, you can expect to have more costs. It is also important to remember that if you sale the home, you will need to make enough to cover the mortgages and other costs. Another good use for home loans is paying for the cost of education for your children. Like home improvements, using a home loan to pay for the cost of education can be an investment. It can keep your children out of debt.

Despite this, many parents will be nearing retirement when their children head to college. Some parents may need the home loans to deal with the effect of not having an income from a job. The last thing that many people do with home loans is buy things they want, such as a boat or a nice car. If you get in a situation where you have medical bills, a home loan may also be able to help you.