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Different Types Of Home Loans That You Can Choose From
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Home loans are an ideal choice for those who wish to purchase their dream home but do not have the finances to do so. A housing loan is provided by a financial institution like a bank, which provides a loan to an applicant for a fixed tenure and charges interest on it. Each month the borrower has to repay the bank EMIs which are a combination of both the loan amount and the interest charged. When applying for such a loan, the applicant is required to provide papers and documentation proving the purchase of the apartment or house and the price at which it was sold. These documents of ownership and proof of purchase are required for two reasons. One is that until the loan has been repaid, the house is used as security. Inability to repay the loan will lead to the bank claiming the house as their property. The second reason is to find out the real price of the house. This helps then prevent applicants from faking the price to obtain a higher loan amount. Also, banks never provide the applicant with the whole price of the house. When an applicant’s housing loan application is approved, they are required to pay a certain amount of the price as down payment. But before an applicant applies for a housing loan, he must be aware of the types of home loans that exist in the market:
1. Standard variable rate loans
This is believed to be the most common type of housing loan available. The bank provides a loan amount for a fixed tenure at a variable interest rate. Borrowers with this type of loan do have the option to switch to a fixed interest rate if required. Also, if you have applied for a big loan amount, you can negotiate with the bank to reduce the variable interest rate charged.
2. Basic variable rate loans
This type of loan usually charges a lower rate of interest but they are not flexible. Also, a borrower is not allowed to make extra payments above a fixed rate.
3. Fixed rate loans
In this housing loan, the interest charged is fixed and is not affected by rate changes made by the RBI. Also, such loans usually do not fine a borrower when extra payments are made.
4. Split or combination loans
With this housing loan a borrower can fix a part of the loan and leave the rest of the loan amount to be charged by variable interest rates. This provides the borrower with both safety as well as the option of flexibility in their loan repayment.
There are a variety of home loans available for a borrower to choose from. He must conduct a detailed analysis and choose the one that best suits his needs.
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