Buying a house
Buying a house:
Buying a house is the dream of everyone’s life. When we start our practical lives, the first thing that we all aim is buying a home for our own. Buying a house need large finances and these finances are not gathered in within a small period of time. We struggle our whole lives to gather enough money to buy home for ourselves and most of us end up in apartments because even after struggling the whole life we cannot make up sufficient to a single or double storey building. But the advancement in financial services by financial institution has greatly simplified our lives. Now, home buying is not as difficult as it was for our ancestors.
Advancement of financial services:
Previously most of the financial services were provided by banks and these services were very limited in them, but now all of the financial services are segregated in an entire field of operations and each of these services are dealt by separate financial institution. Previously, mortgage, banking services and insurances were all dealt by the commercial banks. Now, we have separate insurance companies that offer huge range of insurances that cover wide variety of products. We also have separate institutions and divisions that specifically deal with various varieties of loans and mortgages. Within this category, loans for commercial and industrial sectors are dealt differently.. This is not only the scene of the developing world and particularly the United States, but some developing countries of Asia have equally developed financial sectors so as to facilitate the citizens to the maximum extent possible. These advancements have provided people with a wide range of opportunities that can be capitalized to buying home of dreams.
Options available for buying house:
There are numerous options available to home buyers who are interested in getting a house of their own. If we broadly categorize these options, we come up with secured loans, unsecured loans and installments on new home together with home warranties that take you far in the future. Let us now look at each of these options available that may not be used specifically for buying a house, but can be used for this purpose.
Unsecured loans:
Unsecured loans do not require any collateral to be pledged at the time loan is taken. Since, the chances of default substantially increases the risk of lender, the interest rate charged on the unsecured loans are higher than the secured loans and thus these are a costly source of funding. Within the category of unsecured loans, there are certain characteristics that create the difference between every type of loans and these characteristics are not particular to unsecured loans and can be found in secured loans as well. The elaboration of these important terminologies is given as follows:
- Simple interest – Simple interest is the interest rate that is quoted on annual basis. The simple interest rate, like its name is clear and straightforward and is not manipulated in any way. It is exactly equal to the amount that appears on the face of the loan contract. Simple interest rate generally relates to the discounted loans.
- Compounded interest – Compounded interest is the interest that is compounded over the certain time period that can be monthly, quarterly or biannually. This compounding makes the interest rate look better to the borrower, but in fact, when converted to effective annual interest rate; it is higher than the rate quoted to the borrowers. The frequent the compounding, the greater the difference will be in compounded interest rate and effective annual interest rate.
- Discounted loans – Discounted loans comprise of a single payment of both principal and interest at the end of the tenure of the loan or simply at the time of loan maturity. Discounted loans, when given to borrowers, the interest on the loan is deducted at the time of issuance of the loan and thus the amount received by the borrower is lesser than the amount stated on the contract. At the time of maturity of the loan, the amount that is paid back to the lender is equal to the amount stated on the face of the contract.
- Loans with one time payments – There are certain loans that require that all the accumulated interest and principal be paid in the form of a single payment at the time of maturity of the loan.
- Amortized loans with periodic payments – There are certain loans that demand periodic payment of interest that may or may not include the principal amount. If the principal is amortized on the periodic basis, then the periodic payments include both interest and the principal.
Mortgage loans:
Mortgage loans are the form of securitized loans where a valuable asset of the borrower is pledged for security against default with the lender, in case the borrower defaults on the loan, the lender can sell of the asset and can retrieve the money lent. Normally, the market value of the collateral is higher than the amount of loan and thus the risk involved is comparatively lower. Home mortgage loans are used to buy a house or buy a home and generally are the ones in which the mortgage buyer collateralizes the house bought with amount acquired from the loan.
Installments on home:
When we talk about buying property, certain residential areas like apartments are also available on monthly installments that definitely contain the margin of the offering party or company. Installments are getting very popular these days for acquiring vehicles and residential apartments together with certain home appliances. It is the preferred choice of the first time Home buyer who wants to buy a home of dreams.
Home warranties:
Whether you Buy house or Buy houses, several companies offer home warranties to insurance wide range of appliances used in daily life. So, now you can buy homes with very little concerns of finances.