Home Loan – be a Proud Homeowner

A Home loan is a personal secured loan, i.e., the loan seeker’s home serves as collateral against the loan amount. However, along with other loan papers, the borrower needs to sign an agreement too, which gives the lender the right over the house.

To get a free hold over the house, the borrower has to wait for his repayment term to end successfully. Also, in case of repeated defaults – accidental, repeated or intentional – and non-payment, the lender can take possession of the house and resell it to recover his money.

Typically, a home loan can be repaid over a period of 10 to 30 years. And, one’s monthly installment usually comprises of – principle + interest and PPI (Payment Protection Insurance) premium, if applicable.

The UK loan market offers a variety of home loans in the form of diverse repayment plans:

Fixed rate of interest – the rate of interest is fixed for a certain period and is reviewed at regular intervals

Flexible rate of interest – the rate of interest fluctuates in accordance with the base rate prevailing in the market

Interest only – the borrower pays only the interest for the whole term and is required to pay the outstanding principle at the end of the loan term

Partial interest and partial repayment – the borrower pays only the interest for a specific period and after that pays both the components (Principle + Interest)

According to a latest market report, fixed rate deals are gaining popularity, as first time buyers buckle down under the prospect of higher interest rates. In January 2007, nearly 85% of the first-time buyers chose a fixed rate deal – the highest figure ever recorded – whereas the rest stood at just over 70%. The average interest rate of a fixed rate loan in January 2007 was 5.27%, up from 5.23% in December 2006, whereas the average of a variable-rate product reached 5.54%, up from 5.36% in December. Hence, more and more home loan borrowers – especially the first-time buyers – are opting for a fixed rate deal to fix their monthly loan payments, as it allows them to plan ahead with confidence.

A loan application process should always begin with thorough knowledge of one’s:

Fast and future financial credibility

Material as well as monetary requirement

Credit options available in the loan bazaar

A home loan application is no different. Previously, building societies were the most approachable source of financing. However, nowadays, the loan market offers many more options, both in terms of lenders and home loan products.

One can find hundreds of home loan packages in the market. Choosing the right one can be a daunting experience. But, the online presence of innumerable lenders has made the entire business of lending easy and comprehensible, and credit shopping meaningful.