| Once you have taken on a home loan your monthly | | | | lower income with a prospect of better income in near |
| payment starts from the following month. A monthly | | | | future, for short term home owners and for investors |
| payment of a home loan depends on the total amount | | | | in property. |
| of money that you have borrowed, the number of | | | | (ii)Adjustable Rate: Here the interest rate is not fixed. |
| years or months you have to pay off the loan and the | | | | The interest rate depends on various indexes. |
| interest rate of the mortgage. | | | | Different lenders establish different indexes. Some |
| There are various types of interest rates offered by | | | | common indexes are - treasury notes and bills, the |
| different institutions. Normally, there are Interest Only | | | | Housing Finance Boards' national average, average |
| Rate, Adjustable Rate, and Fixed Rate. Adjustable | | | | interest rate paid on certificates for deposit, costs of |
| Rate and Fixed Rate carry two more sub divisions in | | | | funds for the lender etc. |
| few institutions with the purpose of the borrowing. For | | | | This type of interest rate can increase or decrease |
| example, there can be - Adjustable Rate Residential | | | | depending on the market. With low market rate, your |
| Home Loans, Fixed Rate Residential Home Loans, | | | | monthly payment will be less. Qualify for this type of |
| Adjustable Rate Investment Home Loans and Fixed | | | | Home Loan is easier. |
| Rate Investment Home Loans. | | | | Initial low rate interest is a special benefit from this |
| Though they vary from institution to institution, there | | | | type. However, initial rates, margins, adjustment |
| are some basic features which are common to all | | | | intervals, rate caps and payment caps also |
| home loans offered - | | | | characterize the adjustable rate. |
| (i)Interest Only Rate: Here an interest only payment | | | | (iii)Fixed Rate: Here the interest rate is fixed for the |
| option is attached with the contract note. You have to | | | | whole duration of the loan. It is the most popular type. |
| pay only the interest on the mortgage in the noted | | | | 75% of home loans come in this type. Being a fixed |
| fixed period of time. | | | | rate, it stabilizes your monthly expenditure. |
| For example, suppose you have taken a 5 years' | | | | For example, suppose you earned a home loan to be |
| interest only home loan. Then the payable interest will | | | | paid over 15 years with 6% fixed interest rate. The |
| be the current interest rate with the margin rate as | | | | market rate can increase or decrease, but in this case, |
| decided, say of 2.25%. You will be paying this amount | | | | you will be paying 6% interest rate all through the |
| for five years. After that time you have to pay the | | | | years. |
| adjusted interest only mortgage rate with the principal | | | | Naturally, it provides better security to the borrower. |
| amount you borrowed at monthly basis. | | | | But the fixed rate charge is higher than the adjustable |
| Typical interest only rates are short term. This type of | | | | rates. Also its initial monthly payment is higher than the |
| rate is most suitable for individuals in high-income | | | | other. It is most suitable for the first time borrowers, for |
| brackets, for young professionals who may have a | | | | people with moderate or low income. |