Home Loan Installment Payments
Most people have a mortgage on their home and make monthly installment payments to their mortgage lender, usually on the 1st of the month. Mortgages on your home are usually at a competitive interest rate for terms of 5 years with an amortization of 25 years with some being as long as 35 years. What this really means is as follows. You have a mortgage installment payment that is fixed for the term using an interest rate that is also fixed for the term based on payments that are paid over the life of the mortgage or amortization. At the end of the term the mortgage company will offer you a new term, usually 5 years, at the prevailing interest rate. This new interest rate may be higher or lower, depending on current interest rate in the market.
As long as you always meet your monthly installment payments on your mortgage, your mortgage will be considered in good standing and your credit rating will be unchanged. Should you miss a payment or are late making your payments, the bank may get nervous and call the mortgage and / or file a comment on your credit rating which would make it more difficult to borrow money in the future.
Home Loan Installment Payments
Many consumers will also arrange for a home loan that uses their home as collateral that is in addition to any mortgage that they may have on their home. The installment payments on this home loan will be based on a term of whatever you negotiate, and amortization of the same term. This means that your home loan installment payments may be proportionally higher than the monthly installment payments on your mortgage.
Home loans are attractive especially when they are registered as a loan against your home. The interest rate is lower than a standard personal loan, because the bank perceives less risk associated with the loan. They can always sell your home to collect the principle remaining on the loan. Of course they will stand behind the mortgage holder in terms of who gets paid first.
Some consumers prefer this approach vs. increasing their mortgage because they can pay the loan off separately from their mortgage. The installment payments each month are different of course and will end once the loan is paid off.
In summary the major of a registered home loan is a better interest rate than what you might be able to negotiate on a straight personal loan. So you pay less interest and your installment payments each month are lower as well.
Why Would You Want a Home Loan
Home loans can be used for a multitude of purposes. Many home owners will take out a small home loan to cover renovations they plan to make on their home. Window replacement, a new roof , perhaps some new furniture are just a couple of examples. Typically they are larger than what your credit card can handle and they want to avoid the high interest rates of a credit card balance. Credit card balances will be charged an interest rate of 18% to as much as 28% depending on the store or credit card that you use. Compared to taking out a home loan at prevailing interest rates of around 5% at the beginning of 2010, this is a much better deal.
The installment payments on a home loan vs the installment payments on a credit card will be a lot lower and much more attractive.
Consolidating Loans into One Home Loan
Home loans might also be taken out to consolidate other loans into one manageable loan. Depending on the size of the loans, the maturity dates and the interest rates that are being charged on these loans you may or may not have a lower monthly installment payment. Talk to your local banker to see what your options are and how much your consolidated loan installment payments would be. Once yo have this information, you can make an informed decision about consolidating your individual loans.
In addition to comparing the interest rate and the monthly installment payment you should also ask the banker to tell you what the total cost of the home loan will be. This cost will be the total amount of interest you will be expected to pay and any fees that may or may not be charged to register the loan.
It is important to compare these numbers in addition to your monthly installment payment and interest rate. You could be paying more interest that you thought plus fees just to consolidate your existing loans.
Banks are There to Make Money
All of the banks are in business to make money and with the number of banks offering banking services, they are also pretty competitive. The point to remember that like all financial advisers they do not make money unless they sell something to you. Consumers need to do their home work regardless of what type of loan they are looking at.
If you are thinking of taking out a new loan to consolidate your existing loans and registering your loan against your home to obtain a better interest rate, always examine the details. What is the interest rate? What is the term of the loan? What are the installment payments? What fee’s if any will be applied to register the home loan? and What fee’s if any are there to discharge the home loan?
Always compare the answers to these questions against your current situation. There is no single answer as to what to do since every situation is different and people have different criteria. Some folks are totally focused on finding a home loan with the lowest monthly installment payment, while others will focus on the total cost of the home loan e.g. fee’s plus interest.
Once you have completed your assessment make the best decision for you that fits your situation and needs. You may not obtain exactly what you are looking for in terms of the best deal, but at least you have done the analysis and know what you are getting into. Good luck and we appreciate comments on our posts.
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