Three Major Types of Loans for Home Owners
Most people already have at least one type of loan. But it is comforting to know that there are still other types of loans that you may qualify for, at times that you need it most.
You can use personal loans to pay for emergency expenses. It can be a secured loan, one that uses capital as a security for the loan, or an unsecured loan. While the former often comes with lower interests because its poses lesser risk to the lender, an unsecured loan charges high interests and fees. But, if you use the services of a specialised lender, you may avail of lower loan costs. A personal loan is a useful financial tool you can use for home renovations, car repairs, education expenses and medical bills. Some people use it to pay for their weddings, birthdays, honeymoon and other life events. If you are just starting out a new business and you need capital, you can apply for personal loans to get your business running. Personal loans are also used to consolidate debts and it is advisable for people who cannot keep up with their high interest credit card debts.
it is designed for people who are going to purchase a new home, or those who plan to get a loan by using their existing home as collateral. It has strict requirements because of the huge amount involved and the long term of the loan. People usually choose a 15-year term or a 30-year term loan. The longer the term the lesser is the monthly payment. But, you may have to pay a higher interest plus fees over time.
There are two major types of home loans: fixed-interest and interest only loans.
Borrowers who want stable and consistent rates opt for traditional 30-year fixed mortgage. The monthly payment and the interest rate do not change during the lifetime of the loan. It is not affected by fluctuations and economic issues.
Buyers with less disposable income may find Interest-Only loans or Adjustable rate Mortgage attractive, especially when the interests are low. If you opt for this type of loan, you have to brace yourself for high interests and fluctuating payments in the future. It can go down or up, depending on fluctuations and economic changes.
What are the potential problems in choosing balloon loans or ARM’s? As previously mentioned, your payment schedule may fluctuate from time to time. It can lead to foreclosure or poor credit rating if you’re not making updated payments. But, if you have automated your payments and you have enough income to cover the monthly payments—you may not have to worry about this potential problem. In fact, if you want to save money on interests when the economy and real estate market is doing well, an adjustable rate mortgage can do that for you.
But, if you really want to play it safe, especially if you intend to take additional loans in the future, you can choose a loan with a guaranteed fixed payment to avoid confusion. The payments will not increase at some point in the future, thereby presenting lesser risk to your financial situation. You can adequately prepare for financial changes because you know exactly how much you owe on your mortgage.
Debt consolidation loan
You can replace several loans with just a single loan by consolidating them. Generally, debt consolidation loans come with reduced monthly payments, longer repayment periods and lower interest rates and fees.
For example, if you have five credit cards, two ‘line of credit’ and a mortgage, you can apply for second mortgage to roll them into one easy to pay debt. Instead of paying eight lenders, you are only indebted to one lender. Aside from paying off your debts, you can also use the extra cash to pay for your other needs-such as education, home renovation, car repair or purchase and vacations. You have full control of what you can do with the extra cash. So, if you think you have built a substantial equity in your home, why not roll of your debts into one home equity loan?
Loans were not designed alike. There are loans with very high rates of interest, especially if it has no collateral backing. So, be careful when loans especially if you have bad credit history because if the interests are too high, you are at risk of paying more than what you can afford and of losing your collateral.
To obtain the best value for your money, it is advisable to take time off to plan and research your loan options thoroughly. While consolidating your debts would help ease the pressure off your shoulders for a while, it is a great financial responsibility. If you fail to pay various types of loans on time, you may have to bear its financial repercussions.
There are specialised lenders like Bad Credit Loans that offers cheap loans with easy repayment schedules that helps you pay off your monthly dues without putting your assets at risk.