The article gives a detailed analysis of Home Loans. Now a day, as the country is developing, the standard of living is also improving. Though it is becoming difficult to afford luxury due to the heavy cost involved, still people are demanding for the same.
The demand is usually fulfilled by the loans taken by them various blending institutions. Hence, all areas of expenditure of an individual can be financed by a personal loan. The amount of loan borrowed is usually higher than the amount required for a particular project which is to cover other additional expenses.
It can be a loan needed r construction of homes buying of luxurious items or planning a trip abroad. Banks are giving tough competition to each other in this field by varying the interest rates an favourable terms of loans. Hence attracting customers to avail his facility of loans, credit cards etc.
One such loan which is very common now–a–days is the home loan which is usually taken by the borrowers on behalf of their salaries. Since construction of home requires heavy volume of cash, such loans help the constructor of the home not to spend this huge amount at once rather he has to spend no amount but borrow the required amount which can be repaid in easy instalments whenever he has a funds. This is according to the mutual agreement between the two. Everyone is keen to procure a good accommodation i.e.
Flat, a banglaw for themselves. A regular source of incomes as a proof has to be shown to get such loans. A second type of loan is Home owners loan in which one can avail loan by mortgaging his current accommodation. Sometimes a loan is provided to repay a previous loan which was taken during the construction of the house. But the under the situation, the amount of loan can be availed only till the extent it covers the value of the home equity. Home owner loan is also known as mortgage loan.
Need for Home Loans
The requirement of home loan arises due to shortage of funds available with an individual for buying a property as this process involves huge funds. One is able to finance the expenditure through these loans rather than withdrawing a large amount from the bank at once. The major advantage of taking such loan is that these kinds of loans usually carry low rates of interests as they are secured loans. They usually have liberal terms and conditions of repayment.
Unlike unsecured loans a large amount can be borrowed in forms of such loans and repayment for these can be done through easy instalments. One needs to have a good credit history and minimum borrowing in the past to secure such loans. In this case one should go in for home owner loans as these loan are even given to people who have had bad credit history because of the fact that these unsecured credit loans which reduces the risk of the lenders to a great extent.
Once you avail such loan you can use in the way you want to which means that such loans have flexible approach. It can be used for number of purposes like purchase of a car, for financing a trip, financing the education expenses of the children, renovation or improvement of their house. One can look for lenders easily as lending is being done online too and comparison should be made between different home loans available and the best option should be taken up.
Types of Home Loans
One can make additions to the original home for increasing the value of the property by improving the home and these loans prove to be a boom in this case too because of their tax deductible feature. Improvements in the house may be in the form of refurnishing, redesigning, air conditioning and by adding more acceries to the home.
Collateral security is required to get home improvement loans. Since it makes a less risky task for the companies as it involves lower rate of interest. The basic condition to acquire such loan is that one must own a home and must hold a good mortgage structure of payment in the past.
There are two firms of home loans available to an individual. These loans are:
- Home improvement loans of FHA title
- Home improvement loan of traditional type
Any of these could be used for any fresh constructions, renovations, refurnishing your bedroom, kitchen, garage, bathroom, swimming pool etc. One needs to have an equity in the house if one wishes to renovate, in case a traditional home improvement loan is being considered consisting of one fifth of the cost of the house.
The already constructed equity and those acquired by the changes in the home are to be taken as security for the repayment of loan. Lender is the firm providing the loan. In an home improvement loan, the firm will issue first or second lieu which empowers its right over property till the debt is repaid.
Generally home improvement loan is for a period of ten years or less but could be extended to fifteen years depending on the programme and lender at once disposal. FHA title 1 Home improvement loan can be distinguished from traditional Home improvement loan as the former is a government plan.
Although FHA loan does not allow luxury remodelling but can be used for inevitable repairs and restoring good conditions. This is the general method followed as equity in the home is wished for this type of the loan and traded outcomes of the past is generally not an issue. FHA title loan can be repaid for the period as long as 2020 years, if the owner has kept his credit in adequate standing, that happens lately. In case decision to buy a first home is made or still in investigating phase, local or state community should be checked for programmes available for the first time buyers of home.
Factors affecting borrowing of Home Loans
- The principle amount in a loan is the first factor to be kept in mind while borrowing the loan. In case due to negligence on avoid this factor he/she may become liable to pay higher interest because of high principal amount he had borrowed.
- Secondly interest factor. Higher interest loans should be avoided. Hence careful selection should be done.
- Thirdly, according to ones comfort and source of payment, one should select the loan with low amount of down payments.
- The lender should be a reputed and faithful one before mortgaging any security with the lender one should confirm their reliability.
- The amount of loan to be taken should be assessed and accordingly one should select a lender who provides the cheapest interest loan.
- The instruction and terms of the loan should be read with extra attention so as to minimise the risk of paying hidden charges which may not be highlighted.
- Lastly on should try to borrow loans of short duration as repayments of such loans do not cost high interest rates. Hence, cess interest to pay.
Hence we conclude that a thorough market research has to be done to select the loan to be borrowed. The utmost important factor to be kept in mind is the rate of interest. The other factor like terms and conditions of the loan and the duration of repayment should also be taken care of. The collateral security to be mortgaged is another feature of secured loans to be thought of . Hence a careful study has to made regarding amount required, repayment ability of the customer and security available to borrow a loan.
Advantages and Disadvantages of Home Loans
The borrower should thoroughly search the market and study the kinds of loans being provided with different rates. One should not go by cheaper rates, discount or attractive schemes offered by the lender. If one has a good credit rating, he may have lot many choices or lender offering loan. But keeping all the above factor in mind, one should carefully take a decision regarding borrowing a loan.
If a person needs more amount of money for construction of their house, home owner loan is a better option as it also offers better terms & conditions. There is no hurry to repay the loan back but can be repaid over a number of years. Moreover the lender does not panic for repayment of loan as he has house possession which provides him full proof guarantee.
But one must not overlook its disadvantages also. Since the lender has a direct control over your home, so if there is any default in repayment of loan, they have the full right to take possession of your house. One must keep future prospects in mind relation to ones financial conditions before going for home owner loans. The most useful suggestion one should look in to is the analysis of personal finances.
Account for the profit or loss that one is likely to make which depends on ones financial situation to pay back the loan. A judicious and logical judgement for the cash flows is a wise step as overestimation is always more damaging than underestimates. If a person pledges some security as guarantee for repayment of loan and can jump in for a calculated risk then home loan can be a good solution.
Home loans are a blessing for people, but the need is to opt it wisely. Home loan provides an idle way of purchasing or remodelling a house, still there are some shortcomings which demand a careful consideration before going for the loan. Overall these loans are a boom for the people.