Types Of Home Loans
There are four different types of home loans:
- Variable interest home loan:
- Capped rate loan:
- Fixed interest rate loan:
- Guaranteed decreases:
Variable interest home loan:
Your interest rate is linked to the base home loan rate, which moves up and down depending on the market conditions. The bank can raise or lower your interest rate depending on the rate the bank itself must pay to borrow money. If the base rate decreases, so will your interest rate. If it increases, then your interest rate will increase as well.
Capped rate loan:
This home loan option is not always on offer at banks and you will have to apply for this option. With this option you get the benefit of a decrease in interest rates if the interest rates fall. A maximum is set, so you never pay ore than your capped rate.
Fixed interest rate loan:
The banks sometimes offer you a fixed interest rate loan. This usually is for a specific period. Mostly two years. With a fixed rate interest loan you will pay a specific rate for that time period, which means that, if the the base rate changes, your interest rate will not.
There are advantages and disadvantages when it comes to this home loan option. The advantage is that is the base rate increases, then you will not have to pay more on your interest rate. But the disadvantage is. If it decreases, then you will still have to pay the fixed rate.
Guaranteed decreases:
These home loan options are offered, by the bank from time to time. With this option your interest rate is guaranteed to decrease in steps, such as 0.25% every six months for two years over a period of one to five years.
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