Loans for homeowners are taken out with supplement value of your home or property acting as collateral. It can be obtained by anybody who has partially paid off a mortgage; the more you own, the more you can borrow.
How much can i borrow?
There are two factors which decide the maximum amount to be borrowed.
1. The amount your property is worth. The higher the amount of equity, the more a bank or lender will let you have.
2. The lender will also want to know how much money you pay out each month and they will also require proof that you will be able to keep up the repayments over a prolonged period of time.
The rate of interest on homeowner loans
The loan lasts between 3 and 25 years, depending upon the terms you opt for, and how much the loan is for.
This loan is for items that de-value quickly such as a vehicle and will subsequently incur higher charges than risky ones such as the renovation of house, which will add value to the property.
Types of Homeowner Loans available
On the basis of interest rates there are two basic types of loan for homeowners
1. Fixed Rate Loans
The amount of monthly payment does not change from time to time. When rates are high, the debtor acquires a fixed mortgage and is able to re-finance when rates go down.
It includes a lot of paper work and additional costs.
2. Adjustable Rate Loans
The monthly payment changes and the homeowner will never know exactly the exact amount he needs to pay until the due dates are reached. The homeowner may get stuck when the market rates ascend.
However, the homeowner will have an advantage when the rates drop right away.
Mixed loans are helpful for a person who faces the dilemma in choosing which type of Homeowners Loan they should go for. This in long run saves money.
- ONE YEAR ADJUSTABLE LOAN
Here the rates change every year on the very anniversary of the loan.
This loan allows the person to go for large loan amounts. The loan can be re-financed every year at low rates, however this may be risky as the rates and principle may change from year to year.
- 1/10 YEAR ADJUSTMENT LOAN
Here the rate of interest changes once every 10 years. This ensures stability and at low rates than fixed loan rates for the same term.
- 2 STEP MORTGAGE
This ensures two rates of interest, one for first half and other for the remaining part of the mortgage. The interest rates change in accordance with the market rates. This is a more risky loan as it becomes difficult for the borrower to re-finance the mortgage.
- 5/1 AND 5/5 LOANS
The payment does not change for 5 years, at the starting of the sixth year the rate is adjusted for every 5 year or for 1 year.
This option is good for a debtor who plans to stay for 5 years and later accept the changes.
- 5/25 LOANS
The payment is fixed for the next 5 years, but the rates change in accordance to the current rate at the begging of the 6th year.
- BALLOON MORTGAGES
These work for a shorter period of time and are almost like fixed rate loans. However, this has bad consequences for those who cannot afford it, especially while re-financing to the original lender.