• Homeowner Loans - Drawing Lessons of the Past


    Loans are not of a recent origin. People used to take help from others even at times when money was unseen and barter was the mode of trade prevalent. However, the form of loans has changed over time. In those days the loans used to be offered in kind. Now, they are offered in money or in terms of money.

    However, the concern for the safety of the amount lent has not changed a bit. The most preferred loans are those which are offered with sufficient backing. The backing in most cases is of the house and property of the borrower. Thus, these are also known as loans for homeowners.

    Loans for homeowners, as can be recollected from the above are loans which are offered to homeowners with home or property serving as a collateral. These accrue interest at a certain rate which is added to the principal amount. They are repayable through small instalments or any method desired by the borrowers.

    Offering the home as collateral does not cease the rights of the borrowers as the owner of the home. Though the lender holds the ownership rights to the home, these are exercisable only when the borrower does not repay the entire amount of the loan. The borrower stays in the home and even regains the rights when the final instalment to the loan is paid. Borrowers can sell off the home put as collateral, provided it is allowed by the lender. They will however have to repay the entire amount of the loan with the sale proceedings received. Alternatively, the loan will be attached to the new home or property purchased.

    But, can the worst nightmare regarding the repossession of home ever come true? Yes it can. The lenders will, after resorting to all steps to get the money back, resort to repossession of the home, if the borrower does not repay the loan in full.

    The failure in making payments to the loan is generally attributed to an intentional default on the part of the borrower. Though the reason cannot be altogether cancelled out, the cases are relatively less. Seldom will borrowers desire to endanger their homes by being irregular in the repayments.

    A more relevant reason explaining the defaults are the wrong decisions that people tend to make when going for loans. Most of the decisions are made in haste or without having a proper knowledge of the subject. People rarely foresee the effects the decision can have on the future of the loan. These make the repayments difficult. People try to provide for them with their limited monthly incomes. When they cannot or when other important expenditures take a major share on the income, they default on the repayments.

    The following section will describe the wrong decisions made by borrowers and how they can improve their state by learning from their mistakes.

    Decision on the amount of loan:
    This is the biggest mistake that people tend to make when looking for loans. Had the loans required no repayment, there would have been no limits to the borrowings. Since these are to be repaid along with an interest for the period, it will be necessary to consider carefully ones repayment capacity before deciding the amount of loan. Not only the present income but the projected income at the time of repayment will have to be considered while deciding the amount. The amount of equity in the home also decides the loan granted. However, it will not be advisable to exhaust the equity in home at one single instance.

    Decision on the interest rate
    Who thought interest is simply a single digit factor having not much of significance in the final cost. The search process can be time taking. People take up loans with interest rates higher than what they are eligible to get.

    Interest is set as a percentage of the loan amount. It is dependant on a number of factors like the interest rate prevalent in the market, type of loan taken, case factors of the borrower, etc. Thus the interest charged may differ with the lenders. People can get exclusive deals in loans if a proper search is made. Awareness of the various interest options like discounted interest rate, capped rate, and fixed rate can also help lower the cost of repayments.

    Decision on the loan provider

    Decision on repayment
    The borrower rids himself of the loan by repaying the amount. The most conventional form of repayment is through monthly or quarterly instalments. This is useful for the borrowers who receive a fixed income. The instalment is chosen by the borrower according to his income. Borrowers can lessen the amount of monthly repayments by paying only the interest. This is an interest only method of making repayments. Repayments can also be made all at once to save on the interest cost.

    According to an old maxim it is human to do mistakes, but it is foolish to repeat the mistakes. The experiences with a former loan can serve as a lesson for those who are struggling to come out of the loan trap. The first timers in the loans market however do not need to take the dip to learn the ways of the loan market. Learning from the experiences of the predecessors can protect them from being trapped in such deals.


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