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Home Loans - All that you need to know

A Home Loan is a necessary evil simply due to the fact that many of us do not have the requisite levels of capital needed in order for us to purchase a property outright. Therefore, commercial lenders will provide consumers with a Home Loan so that the consumer can take possession of a property of their choice.

The consumer will then be required to pay back the mortgage at a rate specified by the lender, over a period of time specified by the lender. In the event that the consumer should default on the mortgage (i.e. fail to make the payments) then the lender reserves the right to seize the property to which the mortgage has been secured against in an attempt to recoup its losses.

A home loan is what is known as an "encumbrance" in property law meaning that the title deeds of the property to which the mortgage is secured over will be unable to be sold until the mortgage has been satisfied one way or another. That is why whenever a person seeks to purchase a home it is essential that a title search is carried out in order to ascertain whether there is the existence of any of these encumbrances.

Here's an overview of what a Home Loan is, how it works and what the consumer should be aware of in terms of the legal and financial consequences associated with them.

Home Loan terms defined

When it comes to a mortgage there are a number of terms that are commonly used, and which can oftentimes confuse the layman. A brief explanation of these commonly used terms and phrases are as follows:

  • Foreclosure/repossession: This refers to the process whereby in the event of default (non-payment of the mortgage) the commercial lender will initiate legal proceedings to take the property, and the lender then is deemed the owner of the property.
  • Collateral: An item of real property which is given as a security in the event of default of a Home Loan.
  • Lender: Whilst typically used to refer to banks, a lender can be a private individual, or other commercial entity.

What are the different types of Home Loan available?

Generally speaking, a Home Loan will fall under one of two specific categories:

  • Fixed rate interest mortgage: Here, the interest rates attached to a particular mortgage package will not vary but will remain static throughout the term of the mortgage.
  • Variable interest mortgage: Here, the interest rates attached to a particular mortgage package will vary based on a number of different possible outcomes, including changes in national interest rate, the earnings of the borrower increasing or decreasing etc. Variable interest mortgage deals will usually be fixed for a period of time and after the expiry of that time they will then be vulnerable to changes in the market.

This is only a very cursory and superficial analysis of the Home Loan market, and therefore it is imperative that you shop around to educate yourself as to the effects of the different policies as well as ensuring that you get the most competitive policy on offer. At "Appraisal California" we can advise you on the benefits and drawbacks of the different home loan policies, as well as do a full credit check and earning analysis to see which of the packages would be most suited for you.

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