Buying a home, can be stressful and confusing, especially if it is your first home. Researching home loans can be time consuming. Ask your bank if they have home buying seminars. Attending one will be quite helpful when trying to understand the home loan process.
Where to Begin:
The most important feature to a home loan is the interest rate. That will determine how much you pay the lender for the privilege of using their money, above the amount borrowed. Interest rates come in many varieties, but the most common are the fixed or adjustable rate. A fixed rate is one that remains the same for the duration of the loan. An adjustable rate is adjusted from time to time, either up or down. With a fixed rate mortgage, the payments remain the same but with an adjustable mortgage payments will change as the rate fluctuates. The adjustable rate may be an attractive option and start out low but could rise to such a point, payments become a burden.
Another feature to pay close attention to is penalties on early repayment of your home loan. At the time of mortgage approval, the lender is counting on the full return of the borrowed amount plus interest. In order for the lender to maximize the money they will make on a loan, they may add penalties and fees on the loan if it is repaid early than contractual obligations require. The penalties may not be economically feasible for the loan to be paid back earlier than anticipated. Your loan agreement may include a schedule of early payments at a certain percentage each year with no penalties involved.
A payment holiday means for a fixed period of time you can suspend mortgage payments for any reason and the reason don’t have to be specified. It will be a convenient element to have but the payments will have to be made up increasing the monthly payments of extending the term of the loan or increasing the monthly payments.
This allows the mortgage holder to borrow additional funds against the mortgage without lender approval. The funds are available within a predetermined limit and the borrowing rate is the same rate as your mortgage. The current mortgage rate may be lower than the rate for a personal loan making it more economical for the borrower. This allows the borrower access to extra cash in case of emergency, to purchase a new vehicle or something for the home. The borrowed money will need to be paid back before the mortgage is discharged.
A lender may offer you preapproval of a home loan at a certain amount of money. The upside to this is the applicant will go thru the preapproval process and the lender will guarantee a loan amount at a locked in interest rate. This gives the applicant the ability to find the house of their dreams within the preapproved amount of funding. The time frame will usually be 2 to 3 months. Be sure the preapproval process is one that verifies the data provided by the applicant.