A home equity loan simply refers to a sum of cash borrowed from a bank or financial organization to buy a home. Home equity loans usually include a fixed or adjustable interest rate, monthly payments and other payment terms. Generally people take out a home equity loan for the purpose of purchasing a new home/flat, renovation, extension or improvements to an existing home, or for making home equity more valuable. Some people take home equity loans for securing a better rate of interest on current home loans or for funding a major purchase such as starting a business, click here for more info.
The general rule is that the higher the value of your home, the higher the interest rate you will have to pay. However, there are several factors that affect the interest rate a lender will charge. Your credit rating, down payment made and the amount applied for, are some of the factors that a lender will consider before applying a cap on the amount of interest to be charged. It is important to understand all these factors before applying for home loans.
Adjustable-rate mortgages are otherwise known as ARM or fixed-rate mortgages and are offered to borrowers who require lower interest rates than normal or at current market interest rates. A borrower can choose to take up either a floating or a fixed-rate ARM depending on his requirements. Floating rate home loans enable the borrowers to shift their payments from one year to another depending on the interest rates in the market.
There are different types of home loans available for buyers according to their preferences. There are fixed rate mortgages, flexible rate mortgages, negative amortization mortgages, first mortgage loans, and high-risk loans. Most homeowners opt for a fixed-rate mortgage since this option is suitable for people who have a good credit history and are eligible for regular home loans. This option is also good for buyers who want to make a down payment and pay off the mortgage loan in a single payment.
Home loans also include Mortgage Insurance, Federal Housing Administration or FHA mortgages, and Home Affordable Modification Program (HAMP). The Federal Housing Administration or FHA mortgages are home loans offered by the U.S. Department of Housing and Urban Development or HUD. These mortgages have interest rates that are fixed for the life of the loan. The U.S. Department of Housing and Urban Development or HUD also offers mortgage insurance, which is an additional type of mortgage insurance.
Homebuyers need to understand the difference between federal housing administration loans and mortgage insurance before they go to buy a home. This information will help them make an informed decision. Homebuyers can go directly to the lending agencies or brokers to find out more about different types of home loans. However, it is advised that buyers get some knowledge about home loans from home buyers' clubs or realtors, see this site for more details..