What Types Of Mortgage Loans Are There? The loans for house purchase can be distinguished in three distinct types, according to the interest rate:
- Loans with Variable Interest Rate (Indexed to the bank)
- Loans with a Fixed Interest Rate (Fixed Rate in the initial period and then indexed to the bank)
- Loans with Fixed Interest Rate (Fixed Interest Rate throughout the Loan term)
In the loan company, customers can choose between these 3 types of interest rate (Variable, Mixed, and Fixed), choosing the one that best suits your needs and profile.
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The Interest Rate is one of the most important components of the Housing Credit and the one that reflects the cost of the Loan. The Interest Rate is negotiated freely between the Credit Institution and the Customer and is expressed as a percentage of the capital and corresponds to a specific period, usually 1 year.
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The variable interest rate is a rate that can vary over the term of the loan. It is reviewed periodically, according to the period that is contracted, usually of 3, 6 or 12 months. The bank is the main interest rates used as a benchmark interest rate on housing loans with Variable Interest Rate.
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The Indexer is the interest rate used as a reference for loans with a Variable Interest Rate. The index most used in the USA is the bank and the reference periods of bank most used are 3, 6 or 12 months. A Housing Credit that uses as indexing the bank to 6 months, for example, has an interest rate revision every 6 months.
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Bank corresponds to the average interest rate on US zone interbank deposits of the previous month, published on the Reuters bank screen (or elsewhere) by the American Banking Federation.
The evolution of the bank depends to a large extent on the official interest rate defined by the American Central Bank, the degree of liquidity of the financial system, expectations regarding the behavior of inflation and the monetary policy of the American Central Bank.
The bank, used as a reference in the Loans with Variable Interest Rate contracted with the loan company, corresponds to bank 6 months.
What is a Fixed Interest Rate? Mortgage loan rates today in North Carolina
The Fixed Interest Rate is an interest rate agreed with the Bank for a given term and remains unchanged during that period. The Fixed Rate term may coincide with the total term of the loan or with partial periods (in the case of Loans with a Fixed Interest Rate, for example, of 3, 5 or 10 years, after which the Rate of Variable Interest). During the Fixed Rate Period, the provision is always the same and does not change with market variations.
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In the loan company, clients can choose different types of Fixed Interest Rate (from 10 to 30 years) that correspond to the maximum term of the Loan and different types of Mixed Interest Rate (from 2 to 15 years, followed by the 6-month bank until the end of the Loan).
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The Provision is the amount that the customer pays monthly and that corresponds to the amount necessary to, within the stipulated term, settle the outstanding principal and the respective interest of the Loan. In Standard Loans, most common in the USA, each installment is composed of a portion of capital and a portion of interest.
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In the case of loans with a French amortization system, which is used in the vast majority of Housing Credits in the USA, at the beginning of the loan, interest and less capital are amortized, which is reversed at the end of the loan.
What are the modalities?
The Modality of Provision can be distinguished in 3:
- Standard Provisioning
- Capital Deferral (Residual Value)
What is Standard Provision?
The Standard Installment corresponds to the most traditional and habitual solution in Housing Credit, in which there is a constant amortization of capital and interest since the first installment. With this Benefit, each month the principal is amortized to the Loan and the respective interest.
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Capital Lack of Capital is called when capital is not amortized in the installment, that is when interest is paid only. In this case, during the period of capital shortage, the installment is lower, but the capital outstanding is unchanged, that is, there is no amortization. Online mortgage loans North Carolina: that is why the provision is less. After the period of capital shortage, the installment will be composed of capital and interest, being higher than in the period of Capital Grace.