Selecting the right type of home loan is as important as the home you are choosing for yourself. Since there are so many options available with a person it is easy to get confused. There are loans available for all your needs and various variations can also be done based upon one’s requirements. But broadly, there are five types of loans that are available. Take a look at them below:
- Variable Rate Home Loan
This is the most common type of loan available in which the rates fluctuate based on the interest rate fluctuations. This means that if the interest rate goes down your loan rate also goes down. Thus you can save in the scenario. These loans provide the flexibility of payment as well so that you pay more amount when the rates are lower.
- Fixed-rate Home Loan
Contrary to the variable rate loans, these freeze the interest rate over a period of time. Generally loan takers fix the rates for the initial period only so as to avoid any rates fluctuation. The challenge here is to when pick an interest rate so that it has chances of not going down in the future and thus saving you from potential losses.
- Split Rate Home Loan
This is a hybrid loan that allows you to fix a portion of your loan amount for a fixed rate and rest on a variable rate. The split can be 50-50, 60-40, and so on. This is generally taken by large amount borrowers who fear that choosing either of fixed-rate loan or variable rate loans will cause loss to them.
Read Also: Getting your finances together before buying home
- Interest-Only Home Loan
A loan repayment consists of two parts, principal and interest. Some people prefer starting early repayment for preventing the amount from piling up. Here comes the interest-only loan. Some of the thinking behind interest-only loans is that investors can pay the minimum off their loan while waiting for the property to increase in value, and can then sell it to cover the original loan amount and bank a profit. Thus the loan taker has to pay interest only on the loan.
- Low Document Home Loan
This is a great option for those who don’t have a regular source of income. Business owners, freelancers often face this problem while taking a loan that their income source is not reliable. Low document loans require fewer documents and statements but charge a higher interest rate.
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