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Truth About House Loans
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Home loans are typically mortgage loans provided by lenders to homebuyers so that they can realize their dream of becoming a homeowner. Home loans provide the financial assistance required while buying a home. The amount taken on credit is gradually repaid over a course of time in the form of monthly installments.
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There are two different ways of classifying home loans. One way is to classify them as conventional loans and government loans. Government loans are the ones offered by the federal government. These include FHA, VA and RHS loans. FHA loans are offered by the Federal Housing Administration. VA loans are guaranteed by the US Department of Veterans Affairs and RHS loans are guaranteed by the Rural Housing Service. Government loans have lower down payment, lower rate of interest, flexible repayment period and are easier to qualify. However, funds are limited in case of government loans. Any other mortgage loans apart from these are considered to be conventional loans. Some of these include conforming loans, jumbo loans and B/C loans.
Another method of categorizing home loans is based on the interest rates. In this way, mortgage loans can be classified into fixed-rate mortgage loans and adjustable-rate mortgage loans. In case of fixed-rate mortgage loans, interest rates are fixed for the entire loan term. The borrower is required to pay a definite amount of money every month towards loan repayment and this amount remains same every month. Fixed-rate mortgages are available for 10, 15, 20, 25, 30 and 40 years. Shorter the loan term, lower will be the interest rate.
In case of adjustable-rate mortgage loans, interest rates are low during the initial 2-3 years. These rates are adjusted to a higher rate once the initial period is over. This adjustment is dependant on the market value. As a result, the monthly mortgage payments made by the borrower every month vary depending on the interest rate on the loan. There are different types and variations among adjustable-rate mortgage loans. These include negative amortization loans, balloon mortgage or two-step mortgage, convertible ARMs, graduated payment mortgages, buy down mortgages and fixed-period ARMs.
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