There are innumerable types of loans available these days, with almost as many variations. Here are lots of lenders offering introductory, fixed rate and variable loans with principal and interest repayments or interest-only methods. You need to identify what works best for you.
Both loan applications and refinance activities are at an all-time high. The finance industry, including appraisers, surveyors, title insurance agents, loan officers and attorneys have their hands full dealing with the demand for loans.
When rates drop, many former lenders re-enter the market to make a quick killing before rates go up again and applications drop. If you are an applicant, check out the background of the loan officer you have and if they are experienced. Ask a few probing questions and see if the loan officer is able to explain to you about the APR (Annual Percentage Rate) and if they give you accurate figures.
Look into getting an interest rate without points, which is the par price for the loan. You can also pay points to get a lower rate or get lower closing costs for a higher rate. Efficient loan officers have closing costs at their fingertips. If they can’t give you a precise figure, look somewhere else.
Watch out for promises of fees being waived, by loan officers, because they are neither qualified nor authorized to waive lenders fees. Also, HUD stipulates that consumers should only pay courier and appraisal costs at actuals. Loan officers are not necessarily licensed nor have to pass tests mandated by the state.
Loan Types
Home loans
- Types of loans
There are basically two types of loans – variable and fixed. The variable loan has an interest rate that adapts to fluctuating market rates. Hence, repayments also vary accordingly. A fixed rate loan offers an interest rate that is locked in for a specific term. The suitability of a fixed rate loan for your needs will depend on market rates and the tenure of the loan. It may be wise to lock-in your loan (or part of it) at a fixed rate when interest rates drop. If you find high interest rates are declining, you can opt for a variable rate loan. - Fees inclusion
Apart from the interest rates, you need to learn about any other fees that may be applicable, such as penalties for late payments, topping up, exiting your home loan and redrawing from the home loan. These can impact your repayments in the long run. Also ask for clarification on upfront and ongoing fees. - Packages with extra features
You may find additional features of your home loan that can be of use to you. If you want a flexible loan, ask the lender about the redraw facility terms of your loan. In case you shift or sell your property during the tenure of your loan, ensure you can shift your loan from one property to another without applying for another loan, hence the loan should be portable. You may also get bonuses with your home loan such as fee-free credit cards or discounted insurance plans. - Key fact sheets for home loans
You are entitled to receive a Home Loan Key Facts Sheet for a fixed or variable home loan product from the lender. This will provide you with an at-a-glance summary of the product in one sheet. And will include relevant charges and fees, total payments and monthly repayments.
Loans for students
Key factors to consider when applying for a student loan:
- Speak with the financial aid counsellor at your school to know more about the student loan possibilities. Check out scholarships, federal loans and federal and state grants.
- Check out the terms of your loan. Like interest rates, repayment period, the amount of the expected monthly payment after graduation, and when the payments will commence.
- Know the loan has to be paid back. Although federal loans are often known as aid, they are not grants and have to be repaid. If the payments are not made, it will be reflected on your credit report and will lower your credit score. Not only will your parents be held responsible if they co-signed the loan, but the government can take it out of your wages.
- Check out your college/university. Find out how many of their students repaid their student loans within three years of graduation. This will be an indication of how well students from that school have done in the job market.
- Rethink your major. Check out the potential of the major you have chosen and whether it will earn you enough to repay your loan.
Debt consolidation for loans
Do your homework before getting into a debt consolidation agreement. Find out if you will save any money after you have calculated the new interest rates, all the fees and any other costs involved. Debt consolidation is pointless if you don’t save any money.
Don’t make yourself vulnerable to lenders following debt consolidation. If you replace unsecured loans with secured loans such as a mortgage on your house, the lender can sell your home if you cannot make the payments. Don’t become complacent because the interest payments are lower. You might find interest rates rising with the new secured loan. Discuss this with your accountant.
Have you considered meeting a financial planner? Have you spoken with a bank? Can you get aid from a building society? If they are not convinced about your repayment capability, why would a debt consolidation agency help you? They stand to lose nothing if you can’t repay the loan. You may lose your house but the agency will still get its commission, fees and brokerage fees from the lenders.