At Professional Lending Solutions, we have defined home loans into two types, so you can understand the home loan process. There are two main types of home loans you can choose from:
1. Line of credit
A line of credit loan allows you to access the equity in your home to use as you wish. It is an ongoing loan and generally comes with a credit card. This type of lending is useful to pay for costs including renovations on your home.
Your salary and other income dividends are directly credited to the loan, you use the lender’s credit card for everyday expenses and make a single payment sweep at the end of the month – paying off the credit card. This maximized repayments on the loan reducing interest and enabling the loan to be paid off sooner.
2. Term loan
Mortgages are taken out over an agreed term, generally 25-30 years, and are thus classified as a term loan. Regular repayments are made throughout this period, according to the interest rate that applies at the time.
Longer mortgage terms will result in lower monthly repayments but the total repayments over the life of the loan will be more than shorter-term loans.
Term mortgages include subcategories such as:
- Interest Only
- Full or Low Documentation
- Construction Loan