What is a home loan?
It is just like any other loan given to you by a financial institution, like ABSA, FNB, SA Home Loans or Old Mutual, to buy the home you and your family are dreaming of. The loan is not paid out to you in contrast with a personal loan. Rather paid to the seller of the home you purchase, but you will have the loan to repay every month. There is also interest on the amount lend that needs to be paid. It will be included in your monthly installment. A home loan is known as a mortgage. A mortgage is taken out on a certain period, usually between ten and thirty years.
Home loans are one of the most useful types of financial aids that many homeowners find themselves dependent on. A home loan or home equity loan simply means a large sum of money taken from a bank or financial institution to buy a home. Home loans generally include a fixed or adjustable interest rate and agreed on payment terms. Often people take home loans for either purchasing a new home/flat, renovations, extension and improvements to the current home, or the repayment of a home equity loan. Whatever the reason, several home loans schemes are available, all of them providing the homeowner with a variety of choices in their home loan.
By taking out a home loan, you will need to do a credit score and get a pre-approved certificate. You must provide the financial institution with various documents like certified ID’s, proof of residence, seller/buyer contract, income statements or payslips and tax returns.
The two most common types of home loans are the adjustable-rate mortgage and the fixed-rate mortgage. While both offer the homeowner financial assistance, they have several differences. They are usually more suited for first time home buyers, while the former is more commonly available for borrowers with good credit standing.
Adjustable-rate mortgage home loans are very popular because they make the monthly payments more predictable. Usually, the adjustable-rate mortgage would fluctuate according to the economy’s general trend over time, and so the payments for a specific time can be predicted. When this happens, the adjustable-rate mortgage is said to offer a security for the lender, who is then able to charge a lower interest rate. However, to qualify for an adjustable-rate mortgage, the borrower must have a decent credit score. As such, the number of home purchase loans secured by the adjustable-rate mortgage is relatively higher.
Fixed-rate home loans, on the other hand, do not fluctuate in value according to economic trends. Thus, these types of home loans are better for borrowers who want lower monthly payments for a longer period. The fixed home loan may be suited for first time home buyers, but it is also popular among people who have been homeowners for a few years. The most important advantage of a fixed home loan is that it does not require a monthly payment, so there is no need to budget your money for home improvement or repair projects.
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