Different types of home loans are available and it is important that you choose the type of home loan that will suit your financial circumstances the best when buying a new house.
Variable Interest Home Loan – Your bank can raise or lower the interest rate depending on the interest rate the bank must pay to borrow money. They have to give you notice of interest rate changes.
Fixed Interest Rate Loan – You are locked into a specified rate for a fixed period, usually one to two years. If you think interest rates are likely to go up then this type of home loan may be a good idea.
Capped Interest Rate Loan – You pay the variable interest rate if if interest rates fall, but a maximum is set so that you never pay more than a capped rate, even if interest rates rise above the capped level. Sometimes the capped rate comes with a “collar” which means the interest rate can fluctuate in a range, say between 16 and 19 percent. If base rates drop below 16 percent you will not benefit, but you will not have to pay anything when rates rise above 19 percent.
Guaranteed Decreases – Your interest rate is guaranteed to go down in steps over a period of one to five years.
Make sure before you decide on which solution will suit your needs that you carefully consider the different types of home loans available to you and your family.