Category "Mortgage loans"

Potential Homebuyers and Types of Home Loans

Home loans, also commonly known as mortgage loans, have assisted a tremendous amount of people. The majority of homeowners make monthly house payments. When a person wants to purchase a home, they can become overwhelmed in regards to all of the different types of home loans.


One type of home loan is a fixed-interest mortgage. A fixed-interest mortgage is a loan that has the same interest throughout the life of the loan. This is also referred to as a loan that is amortized. The loan payments are normally monthly, and the interest is paid at the front of the loan. This means most of the monthly payment goes towards the interest during the first few years of the loan. There is very little that goes towards the principle of the loan.

A second type of home loan is an adjustable-rate mortgage (ARM). An adjustable-rate mortgage is a loan that has an interest rate that changes every year. An ARM is not as popular, because the interest rate usually falls above a fixed-interest mortgage rate. One alternative to an ARM is a hybrid ARM, which is partly a fixed-interest mortgage. A hybrid ARM will have a fixed-interest rate for a certain period of time, such as 3 or 5 years, but the interest will eventually become adjustable.

A third type of home loan is an interest-only loan. An interest-only loan is beneficial to some buyers, because some people need a payment that is at the bare minimum. Homeowners who choose the interest-only loan have the option of paying towards the principal, but they can just pay the interest through the beginning years of their loan.

Potential buyers can make an educated decision about the type of home loan they will be committing themselves to. They can look at their finances in more detail, and they can decide what loan aspects are most important to their individual situation. If their income is low, but will greatly improve in the future, an interest-only home loan may be the answer.

Another important factor for the decision-making process for the potential buyer is to make sure they look at every loan detail. For example, some loans carry a very low interest rate. However, it is possible that the fee structure is very high. Another important loan detail is the amount of loan features. Many loans that have a great number of features carry more fees or a much higher interest rate.

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