What is a home loan and how does it work?
A mortgage is a loan from a bank or lender to help you finance the purchase of a home. When you take out a mortgage, you make a promise to repay the money you’ve borrowed, plus an agreed-upon interest rate.
A government-backed loan is a loan subsidized by the government, also known as a Federal Direct Loan, which protects lenders against defaults on payments, thus making it a lot easier for lenders to offer potential borrowers lower interest rates.
The main advantage of a fixed-rate loan is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise. Fixed-rate mortgages are easy to understand and vary little from lender to lender.
An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. With adjustable-rate mortgage caps, there are limits set on how much the interest rates and/or payments can rise per year or over the lifetime of the loan.
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Buying a house involves a lot of financial planning.
Frequently Asked Questions
Your Home Loan eligibility depends on various factors like age, income, debt repayment history etc. The eligibility criteria differ from bank to bank. But, before you decide on the loan amount, it’s smart to evaluate your current financial situation and determine how much money you can comfortably shell out each month.
Before you approach any bank for a loan, it’s important to find out how much you will be spending each month on your Home Loan EMIs to avoid any nasty surprises later.
The interest rate
The rate of interest on your Home Loan can have a major impact on your EMIs and your total interest outflow. Shop around for lower interest rates before choosing a lender.
Your Credit Score has a major impact on the approval of your Home Loan application. Your score is based on your previous borrowing and repayment credit history. If you have a high Credit Score, you are more likely to get a better Home Loan deal with the bank.