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federal home loan bank |
The equity in your home is one of the most valuable financial tools you possess. Put it to good use to consolidate higher interest rate debt, make home improvements, pay for private school or college tuition, purchase the vehicle of your dreams, and much more. The interest you pay is generally tax deductible (consult your tax advisor), making a Home Equity Loan a smart choice over traditional loans. A home loan - sometimes called a mortgage - is simply a long-term loan. You get one through a bank, credit union or other financial institution. Although it is likely to be the biggest loan you ever have, it is designed to be paid off slowly through manageable monthly or fortnightly repayments. You choose how long you need to pay off the loan. Terms of 30, 25 and 20 years are most common. The lender will use your house as collateral against the loan.
How a home loan works A home loan is made up of principal and interest. Principal is the amount you borrow. Interest is what you pay to borrow the money. At the start of the loan, your repayments largely consist of interest, with a small amount going towards the principal. As you reduce the principal, your interest charges fall until eventually the loan is paid off. Here's an example: If you took out a $100,000 loan at seven per cent over 25 years, you would end up paying a total of $212,100: $112,100 in interest plus the $100,000 principal. |
