When borrowing money be it for personal reasons, for investment or for a home you need to consider the many options available to you. If you are taking on the daunting task of “going it alone” then you may need to do your research first however if you are using a financial broker or a mortgage broker you will find the answers to your questions there.One popular loan scenario is a interest only loan and a principal and interest loan. These loans are quite simple to explain and there are different circumstances that a principal only loan would be applicable.Interest only (IO) loans are simply that. You only pay the interest on the money borrowed. The interest only period is usually set by the lender depending on the product (ie loan option) you choose. At the end of the IO period the loan reverts to a principal and interest loan.Principal and Interest loans ensure you are paying not only the interest on the loan but a portion of the loan principal. So why take out an Interest Only (IO) loan? The reasons can be many so here is a couple of reasons that may give you cause to take out a loan at interest only.Financial Hardship: When things get tough and you are struggling to meet your financial commitments your financial adviser, mortgage broker or accountant may recommend an IO loan allowing you to get bug on your feet again.Investment: Many financial planners and accountants will advise to use an IO loan when purchasing investment properties to minimise your outgoings and to maximise the tax advantages. A mortgage broker will advise you of this option but recommend you speak with your accountant before proceeding.A principal and interest loan is the most popular of loan options for owner-occupied homes. These loans allow you to pay off your home (principal) and the interest with each repayment. The disadvantage of using an interest only loan for an owner occupied loan would be that at the end of the interest only period (normally 5 years) you would have to make higher repayments at principal and interest than if you had had been paying the principal and interest from the beginning of the loan term.Here is an example of your repayments on a IO loan during the IO period and after. We have used a fixed rate for this example however lenders may offer an option of variable or fixed rates:Home loan: $330,000 Loan Term: 30 years Interest rate: 6.5% fixed for 5 years Monthly interest only repayments: $1,625.00. After 5 years with 25 years still on the loan: Monthly principal and interest repayments: $2,025.62. Compare this with a loan of the same interest rate, same loan term and paying principal and interest: $1,896.20 monthly.When considering an interest only loan it is important you have a chat with your accountant. Whilst a financial broker or a mortgage broker can provide advice your accountant will be able to advise you on your tax implications if any and also provide a second opinion.
Tag Archives: loans
Home Loans: To Substantiate Financial Possibilities On Your Land
Availability of Home loans is in full bloom. They are uncomplicated, tenable, easily available, very flexible and tailor-made for homeowners. They are offered by almost every loan lending or financial institution. Home loans are like omnipresent and yet encountering the requisite home loan is like a Gordian knot. Sometimes innumerable alternatives have the obvious effect of leaving you irresolute of which home loan to settle for.Low interest rates, low APR, flexible loan terms, credit history not taken into account – you have heard all that before in context of home loans. As a layman you don’t understand that enough. But you absolutely need a home loan. So where do you begin – with the meaning of home loan? That is perhaps the right place to start. Home loans are loans taken against your home and more often referred to as mortgages. In a home loan your home is your personal guarantee for the money that you are taking. The value of your property must have increased enormously since the time you bought this house. A home loan implies drawing on this value of your property to get to you the financial assistance that you necessitate.Home loans are available in all configurations and contours. You won’t find any more modifications anywhere except with home loans. Home loans in UK are obtainable in the form of adjustable rate home loans, fixed rate home loans, balloon rate home loans. Do your homework before you make your judgment about the home loans that is right for you, your future financial picture.Homework? Well, yes there is a lot you can do to lead yourself to the home loans that you need. First try to understand the meanings of the different home loans. There are always two sides to a story. Therefore it is highly recommended to learn about the different home loans types. This is your homework.Fixed rate home loans are perhaps the most frequently used home loans by homeowners everywhere. The interest rates on home loans are fixed or rather stable. The interest rates that you settle on will be the same rate that you pay for the entire home loan term whether it is 15 year or 30 year. Fixed rate home loans are inflation resistant. An increase in the loan rates or taxes or insurance costs won’t effect your home loan payment. Fixed rate home loans are low risk home loans. Since you are aware of your monthly income before hand, you are free to sketch loan term financial goals.Adjustable rate home loans start with low interest rate and low monthly payments. Adjustable rate home loans imply that the interest rate can change during loan term which will either increase or decrease your monthly payment. It is an unpredictable situation. Adjustable rate home loans have adjustment periods that will decide how often the interest rates will change. The popularity of this home loan lies with the fact that it start with low interest rates.Balloon mortgage are based on a 30 year repayment plan which after 5 to 7 year term you can either repay the entire mortgage or reset the entire home loan. Balloon mortgages are again of two types – 7/23 and 5/25. The 1st number (7 or 5) is the number of years before the balloon maturity date. The 2nd number (23 or 25) is the balance of the term.Home loans interest rate is dependent on your credit status. This simply means that the interest rate on your home loan will be high if your credit history is faulty. Poor credit score won’t prevent your odds at finding the home loan but it will certainly have impact on the interest rate. Down payment is another interest oriented term. The more the down payment, the lower will be the interest rate. Don’t hesitate to ask questions about your home loan and make sure you completely understand the terms and conditions.Another factor is debt-to-income ratio. It is the amount you make each month as compared to the amount of your monthly debt. Finding a good home loan lender is also crucial. Pre qualifying for the home loans will negate the tediousness associated with the process of getting a home loan. Compare mortgage rates and mortgage services offered by various lenders to know the best home loan that befits your motives.A ‘right home loan’ is not an idealistic phrase. On the contrary it is not only realistic but also has the ability to save a lot of money over the term of your home loan. Savings on home loans makes sense to every homeowner. Doesn’t it? A home loan makes sense for every homeowner. With lender competing against each other why don’t you go and catch the high tide. Catch the high tide i.e. your kind of home loan!