The Real Estate Blog

Today it is a very common practice to apply for a home loan.

It goes without saying that this is a very serious decision, which requires a long and thorough consideration. Surprisingly, the majority of loan appliers do it in an “economically and financially illiterate” way and as a result suffer serious losses.

There are two fundamental steps to be taken before applying for a loan. They will secure you from such problems.

1. First, you need to determine your budget. Very often the loan appliers skip this step, trusting the loaner to decide their monthly payment. In such cases there is a risk that the monthly payment will be higher than you expected and you will come to a deadlock. While if you determine your budget and the limit of your possible monthly payment beforehand, it will be easier and safer to make a deal.
2. The second step is to learn about the basic types of loans, their principles and conditions they suggest, so that to choose the best possible alternative.

I cannot help you to determine your budget, but my following overview is meant to give you some information concerning the types of the loans.

• The first type of home loan is the fixed rate mortgage loan. It secures you with a constant interest rate, so that your monthly payment is free from unexpected ups and downs, irrespective of the changes in the economic and financial market.

The disadvantage of the fixed rate loan is the high interest rate. This is meant to secure the loaner form serious losses when granting a long term fixed rate loan. For instance, if it is a 50 year mortgage, the loaner is undertaking a serious risk. If the prime interest goes up during the life of your loan, your loaner will have to undertake all the additional expenses as your interest rate is initially fixed and is secured from changes.

• The second type of the home loan is the adjusted rate mortgage. Here the changes of economic and financial market directly influence your interest rate. The interest rate is lower than that of the fixed rate loans, but the loan itself is very risky, as your monthly payment depends on the economic and financial condition of the moment.

Now there is a new tendency for the adjustable rate mortgages to start with an introductory period from three to seven years. During this period your interest rate is fixed just as it is in the fixed rate mortgage loan. And only after you successfully pass this introductory period, you switch to the traditional adjustable mortgage loan model.

• The third basic type of home loan is the balloon loan. Your have a quite low fixed interest rate for an initially set period. But when this period is over you have to pay the rest of the money at once.

These are the basic types of loans for homes with their main pros and cons. Now with this information and with your clearly determined budget you are ready to confidently apply for a home loan.

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