In taking a home Loan, you should be able to get enough to cover payments for the present purchase, but it shouldn’t needlessly tie you down for a very long period into the uncertain future. When getting a home loan, there’s one kind of loan for those who will live in the purchased home, and there’s another kind for investments. You should compare according to what you need and what the banks offer in their loan products.

You will also have to take into account what payment plan fits your financial position. Banks and loan providers offer home loans at either a fixed or variable interest Rate structure.

The basic things you have to know are the minimum required deposit and the life of the loan in terms of years. You’ll also have to compare home loan rates since this will go into the computation of payments you’ll have to make for quite a number of years.

Basic Loan Types

• Owner-Occupied vs. Investment

Home loans can be classified based on whether or not the borrowers will also be the residents of the property to be bought. If you’re planning to live in the home to be purchased, then you’ll need what’s called an owner-occupied loan. Whether you’re going to buy an existing house, build a new one, or renovate an old structure, you’ll have to take an owner-occupied loan if you plan to live there, too.

The main difference of an investment property loan is that you won’t be residing in the property you’re buying. Your plan would be to make some money out of it. If you’re eyeing a property with the intention of making a return or profit in the coming years, then what you need is to take an investment home loan.

• Interest Rate Structure

The other basic thing to consider about home loans is the interest rate structure that will be applied to your home loan. The two main choices are fixed rate structure and variable rate structure. The advantage of a fixed interest rate structure is that you’re given a heads up of how much interest you’ll have to pay each month for a certain number of years. Whatever happens to the economic situation or business climate in your place, the amount of interest you pay on your home loan remains the same.

The other main type of loan interest rate structure is the variable rate home loan. This one gives you more options. With a variable rate, the interest on your home loan varies. It may change at any time based on factors that are determined by the current economic situation.

The major disadvantage with the variable rate home loan is that the rates of home mortgages skyrocket, so will the interest rate on your home loan. But one of the key advantages of a variable rate home loan is that, on average, they have lower interest rates compares to fixed rate home loans.

There’s a loan type which combines features of a fixed rate home loan and a variable rate home loan. This combination is called a split; rightly so because it usually splits the structure of the home loan into a fixed rate home loan structure for half of the mortgaged amount, and, for the other half of the split, a variable rate structure. The main advantage of the split loan is that you’d be able to get some predictability with the fixed half, but at the same time, you can enjoy some of the flexibility and low rates of variable structure.

Things To Compare

To get the best mortgage, you’ll have to compare several things about the home loan products of various banks. Study the following things to compare so you can make a smart choice about your home loan:

1. The Minimum Deposit Required

The first thing you should compare is the minimum deposit required. This is important if you have limited funds for the deposit; otherwise, it doesn’t really matter. Most banks and loan providers require a minimum deposit equivalent to 20% of the property’s price tag.

If you’re in a tight financial situation, and you’ll also be using the house as your own place, then perhaps you’d get a better deal by taking a home loan with a low deposit requirement. Some banks and loan providers are willing to lend as much as 95% of the purchase piece if it’s your first home purchase. You’ll just have to pay for lender’s mortgage insurance.

2. The Interest Rate

The next thing you have to compare in taking a home loan is the interest rate, as it’s one of the most important factors. The interest rate goes into how much you’ll really pay as a total cost of buying the property. The internet rate will also determine the amount of monthly amortization that you have to pay.

The interest rate affects the ongoing cost of the mortgage. This simply means that over the whole life of your mortgage, lower interest rates would redound to lower ongoing mortgage repayments and interest amounts paid for the loan.

3. Other Fees Charged

There are other fees included when you take out a home loan. Most other people would just overlook the other items of payments and fees charged when they’re given a sample computation of the proposed home loan.

Especially when the terms used don’t sound familiar, working folks looking for a good loan would just tend to ignore them. Don’t fall into the same trap. Check out every item included in the fees charged and if there’s something you don’t understand, don’t hesitate to ask the loan officer or bank staff assisting you. Remember that for the next 10, 15, 20 or 25 years over the life of the loan, it’s you who’ll be paying for the loan—and with your money.

4. Policy On Payment Defaults

In the course of the loan terms of 10, 15, 20 or 25 years, it’s entirely possible that there will be months when you’ll have a shortfall of cash. There might be times when you’ll default on your monthly payments. Because there’s so much uncertainty in the course of the loan’s life term, it would help to know in advance how the bank deals with payment default.

Ask your bank or loan provider for their policy on payment defaults. It’s better if they have something written to provide you, which can be a source of future reference. Ask them what fees and penalties would be charged (and how much) in case you incur in default on your monthly payments.

Picking The Best

Picking the best home mortgage you can get is one of the most important decisions you’ll ever make in life. It’s about buying the place where your family will be staying, and being tied down to something you have to pay for each month for many years to come. So, don’t hesitate to research for the right information, ask bank loan officers questions, and carefully study even the minute details and differences of loan products.