Loan Lingo – It Pays To Know
By Adam J. Heist
It is not advisable to make an application for a loan without knowing the correct jargon that is used in the market. Due to your lack of fluency with loan parlance, you may miss out on some beneficial feature, or end up paying more than you should.
So let us check out some of the common terminologies associated with loans.
(1)Government and Conventional loans – In the US, a very high percentage of people has borrowed mortgage loans to purchase their residential homes. About 20% of these home loans are guaranteed or insured by some agency that acts in conjunction with the federal government. For this reason, these loans are also called as government loans. The rest 80% of the loan constitutes what are known as conventional loans. Lenders who are not sponsored by the government provide such loans. Examples are the FHA, VA and the RHS.
(2)Federal Housing Administration – These are known as the FHA. Started in 1934 during the Great Depression to provide an impetus to the US housing industry, this is the facility that provides people from low and moderate income groups to get their mortgages. Lenders giving these loans are provided federal insurance against the losses. However it must be noted that the FHA itself is not a moneylender. Hence when the borrowers are looking out for an FHA loan, they must approach FHA approved lenders. These could be banks or similar financial institutions.
(3)Department of Veteran Affairs – The Veteran Affairs provision, commonly known as VA, provides veterans and people on active duties to buy homes with mortgages. Again, VA is not a lender, but it guarantees the mortgages and loans that are provided by lending institutions. The VA loans are sponsored by the US Department of Veteran Affairs. They are very beneficial to the people eligible for it, as they offer very low interest rates, little or no down payments and low declaration of income.
(3)Farmers’ Home Administration – These are also abbreviated as FHA. The name is actually a misnomer, since one doesn’t have to be a farmer to avail of this loan. The only qualification is to have a home in the countryside. There are small down payments on these loans and they are very simple
in procuring. These loans are overseen by the Federal Housing Administration.
All these loans have the common features of low down payments, long loan terms, no prepayment penalties and low interest rates. However, one basic limitation with these loans is that they are targeted to specific kinds of people only. For that reason, there could be more verifications and longer time for processing.
There are some more types of loans that you could consider. The following are some of them:-
(1)Fixed rate loans – These are the loans where the rate of interest remains fixed for the entire tenure of the loan. These loans are generally for long term, such as 20 or 30 years. The advantage with these loans is that you can keep up with the payments since you know well in advance how many the outgoings will be for the life of the loan.
(2)Adjustable rate loans – Also known as the variable rate loans, these loans have rates of interest that may rise or fall as per market trends. Here the borrowers could get up to ten years to repay. If there is a low rate at the onset, then you would get lesser time to begin repaying.
(3)Combination or hybrid loans – These are a blend of fixed and adjustable rate loans. Here the initial period is fixed, which could be less than one year. Within this period the interest could be lower than the fixed rate loans. But after this initial period is over, the loan would switch over to an adjustable rate loan.
(3)Balloon mortgages and pledged asset loans – In these loans, the monthly mortgage installments are based on a fixed term, which could be as much as fifteen to thirty years. During the life of the loan, you would have to make a smaller payment, but when the loan is about to close, the dues would have to be completed. People who have sufficient incomes to pledge as collaterals are eligible to get pledged asset loans.
Adam Heist has helped many internet surfers since launching
his website Secured Finance which details many aspects
of the loans industry. Adam also prides himself on over-delivering, why not stop
by today and see why.