The range of loan products in the market just seems to get bigger every day. It may be incredibly confusing. Among great advantages of this is that in order to obtain a competitive edge, increasingly more lenders are offering flexibility in their loans. That is where convertible loans come into the picture. They are a group of loans where you’ve the pliability to convert from one type of loan to another whenever you choose to. Probably the most typical types of convertible loans is a variable rate mortgage that may be converted to a fixed rate loan. This could be very handy should you go through a period of your life when certainty about your loan repayments becomes essential.
In case the woman in a couple stops work to have a baby. Even though fixed rate repayments are usually a little higher, the certainty of knowing what the payments will be until she returns to work can give you great peace of mind. This is especially the case in an economics where rates are usually rising. You may also convert the other way – from fixed rate to adjustable. This usually means your repayments are initially lower, so it may give you a bit of breathing space or more money in your pocket. Even better, if you can continue the higher repayments you are already used to, you’ll actually be paying more of your loan, that is a big bonus.
Another kind of loan becoming more popular, especially for investors, is the interest only loan. This has the advantage that your repayments are much lower, but the obvious disadvantage is that you are not paying off the loan at all. Mainly these kinds of loans are only for a fixed period, so at some point down the track you’ll have to start paying off the loan, not only the interest. However this type of loan can work really for a homeowner who gets a lot of their income in Lumps, for example, commissions or bonuses. In that case they could make minimum interest repayments more often than not, then occasionally pay a lump off the loan when a bump in their income occurs.
If you are not planning to be within your house long term, then a balloon loan might suit you. With a balloon loan, you typically have a fixed rate and a fixed period and the monthly repayments are quite low. Towards the end of the 7 years you either have to pay the balance of the loan off in full, or you typically have the opportunity to refinance the loan either with the same lender or elsewhere. A balloon loan is perfect for somebody who knows they’ll likely move on a regular basis due to their work, or perhaps in a situation where a spouse is going to home with kids for a number of years, but after which will return to work and improve the family’s capability to repay a normal loan.