Home Loan – An Insight


A home loan or mortgage simply means a specific amount of money borrowed by a bank or other financial institution to buy a home. Home loans usually include a fixed or adjustable interest rate as well as payment schedules. Generally people take home loans for the purpose of either purchasing a new house/flat, building a new house, reconstruction, extension and improvements to the current house, etc. However, there are certain times when people take out home loans for different purposes. For example, many people also take out loans for vacation, education, debt consolidation and even for paying off credit cards and other loans. Whatever your reason for taking out a home loan, it is important to understand how home loans work.

One of the main differences between a home loan and mortgages is that the former does not have any maturity date while the latter has a specified date for repayment. Home loans have longer repayment duration whereas mortgages on the other hand have relatively short durations. The repayment durations of both loans are determined according to various factors like down payment made, property type, lender, and the interest rates.

It can be said that the two types of loans are broadly similar. One major difference lies in the manner in which the money is disbursed. Conventional loans are given on the basis of need i.e. if the borrower needs a large sum of money then he can take out a home loan in large amounts. Whereas, mortgages are awarded on the basis of need i.e. the loan amount is fixed and the borrower can only get the money if he applies for it.

Home loan and conventional mortgages differ primarily in terms of rate of interest and principal. In case of conventional mortgages, the rate of interest applicable to a borrower depends largely on the credit rating of that borrower. If the credit rating of a person is less than twenty percent, he will have to pay high rates of interest. Whereas, if the credit rating of the borrower is over twenty percent, he can get one of the best deals in the market by getting the home loans.

However, the biggest disadvantage of conventional loans is that they come with high closing costs. The interest on the home loan will be higher than that of the mortgage insurance. Therefore, the home owner has to pay a considerable amount of fees on both the mortgage insurance and the mortgage loan. Moreover, if the borrower gets defaulted on the repayments, the interest on the loan will be increased and the principal amount will be charged. So, the borrower has to be extra cautious while taking out mortgage insurance.

Home loans and adjustable-rate mortgages loans are widely available in the market. However, most people go for a fixed-rate loan because the interest rates offered by them are always higher than the other ones. Hence, it is better to go for a fixed-rate loan and enjoy the benefits of low interest rates. You can also search the internet and find the best deals of fixed-rate home loans.

However, while opting for fixed-rate mortgages, make sure you research and find the best lender available in the market. There are lenders who offer variable-rate loans also. But since the variable-rate mortgages come with much higher interest rates, it is better to go for a fixed-rate mortgage. This way you will be able to reduce your monthly mortgage payments and also reduce the cost of interests.

Homeowners with good credit history, decent employment and annual income of more than a hundred thousand dollars can opt for jumbo mortgages. On the other hand, those homeowners having a weak credit history, a bad FICO score and a small debt can go for other options. One of them is short-term loan with a high interest and affordable repayment duration. If you have all these things in your favor, you can certainly avail the jumbo mortgage.