Shelter is one of the basic human needs. Under many world constitutions, shelter is given priority with many governments trying to ensure that all their citizens have at least a house of their own. Owning a house is an expensive process that most people are not able to undertake it without financial support from lending institutions.
There are many types of mortgages that one can take if they want to either buy a house or build one. One of these mortgages, that is relatively common among many borrowers is the home loans with variable interest rates.
A variable interest rate mortgage has several benefits compared to other loan types. The first benefit is regular repayments intervals. When a customer goes for this kind of loan, he or she and the lender will agree at the durations between repayments.
One is allowed to choose at the interval that he or she sees best. These regular repayments intervals allow the customer to organize himself or herself since he or she knows when the next payment should be made.
One can redraw the excess money he or she has paid in case of emergency. This allowance is not available on other loans. This is beneficial especially if you need emergency cash and you do not want to take a loan. However, the redraw is usually subjected to terms and conditions.
With this loan repayments can be made at any time one wants. This means if you have excess cash with you can use them to pay the loan without being charged a fine. This important aspect of this type of loan makes it possible to repay the whole value early without having to commit yourself to high repayments.
If you have other credits on the same bank, you can settle them against the same principal. This reduces the number of loans that you are dealing with hence making your repayments simple and easy. It also allows you to extent the duration of the other loans as they will now go to the full life of this mortgage reducing your burden.
Although this loan which is a darling to most first time home buyers has the stated advantages, it also has two major disadvantages compared to other types of home loans. The first disadvantage is its vulnerability to market situations.
Because its interest rate depends on the market interest rate, one will not be able to predict the amount of repayments he or she will pay in the future making budget very hard. It is almost impossible also for the borrower to know the exact amount he or she is required to pay back at the end of the loan.
Another disadvantage is that the interest rates on this type of loan are sometimes higher than other home loan rates. Higher interest means that the loan is expensive. However, these disadvantages have not deterred many people from going for these types of home loans.
By Robert Charlson