How To Compare Home Loans
If you are shopping for a home loan, it is important to compare the types of common home loans available on the South African property market. Most large home loan lenders offer the kinds of home loans mentioned below. And of course, these home loans are applicable in the case of refinancing. Continue reading and learn more about each type of home loan.
Variable Rate
A variable rate is a type of home loan that links your interest rate to the base rate of your home loan. The base rate will increase or decrease parallel to the conditions of the home market. For example, if your base rate is lowered by 1%, your interest rate will also be lowered by 1%.
Fixed Rate
With a fixed rate, your interest rate will be set at a certain amount for one to two years. In most cases, a fixed rate is a little bit higher than the base rate was at the loan's origination. The benefit of a fixed rate is that it keeps you from experiencing a rise in interest rates, allowing you to know the amount of each monthly payment. The only downside is that if interest rates decrease during the fixed time period, you cannot take advantage of it.
Capped Rate
The capped rate type of home loan takes the best aspects of the fixed rate home loan and variable rate home loan by letting you lower your monthly payments when the interest rate drops, but putting a cap in place to keep you from paying over a certain amount if interest rates shoot up. However, not all banks offer this options and if they do, it can be difficult to qualify.
Reducing Rate
The reducing, or step down, rate will lower your home loan interest rates in equal steps during the agreed upon time period, which is generally a maximum of five years. The reducing rate can still be taken advantage of no matter what way the interest rate moves.
Interest Only
This is a kind of home loan that only makes you pay on a fixed interest rate each month. However, an interest only home loan is made available for a time period of mostly five to seven years. Once the time period lapses, you have one of several home loan payment options--pay off your principle, refinance, or pay the remaining balance.
Balloon Payment
A balloon home loan payment is a large payment that home owners must pay when their mortgage period ends because the total of the loan was not amortized. The balance owed must be paid at the end of the loan. This type of payment can either have a fixed rate or a variable rate.
But before you make your decision regarding home loans, you should investigate all of the options available to you. Start by talking to your real estate agent and then take your knowledge one step further and browse on the internet. Once you make a decision, if there is something in your contract you do not understand, do not be afraid to ask your lender to explain it to you as many times as necessary.
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