Questions

Questions

Different forms of finance are available to assist with house purchase. Explain, with relevant examples, the strengths and weaknesses of each of the available methods.

Despite the purchase of the apartment investment, or is purchased for permanent residence in it, we need capital in order to extract profits in the future. As in the case of the conclusion of any contract legally significant when it comes to significant funds, the risk, of course, exist. It must be remembered that the acquisition of house in the primary market and the secondary (it is the house that already has a host) has a lot of difference (Sprecher, 1993, p90).

There are several ways of home ownership; depending on the conditions associated potential buyer can choose the most suitable for him. According to current domestic laws, becoming the owner of the property may be the result of direct purchase of an apartment (on a contract of sale of an apartment ), sharing accommodation (on a barter agreement), the donation, due to inheritance of property - these methods are practiced frequently (Campos, 2006, p45).

Different forms of finance to assist with house purchase are as follows:

Mortgage Categories

All mortgages fall into one of two categories:

Interest only mortgage

With interest only mortgage option, the borrowers pay monthly smaller Loan payments, because he pays only the interest portion of the loan and not the principal. The principal refers to the amount of the loan. In the conventional mortgage loan payments, the borrower goes toward lowering the interest rates and repayment.

The normal loan payments with interest only mortgage are lower than in a normal mortgage. This allows the borrower afford to buy a larger property, or use the extra money for something else. As long as the borrower makes interest only payments, his client remains the same. Since the principal remains in the early years of the mortgage, lenders charge more for interest only mortgages as they are at increased risk. Interest only mortgage option is usually connected to an adjustable rate mortgage that offers lower interest rates at the beginning of the loan term and then adjusts to a variable rate. Once the loan is reaches to a higher interest rate, borrowers can cause financial problems (Sprecher, 1993, p90).

Repayment mortgage

The repayment mortgage is the traditional form of construction financing, which consists of an annual interest rate and repayment rate. The annual interest rate is committed due to the borrower's selected interest period. The repayment is almost always arbitrary. The monthly cost will remain the same during the fixed-rate period. These mortgages have a lower monthly mortgage repayment. Cost, ease of use, through principal repayments, the interest component is reduced and thereby the principal portion increases (Sprecher, 1993, p90).

Types of Mortgage Loans on the basis of Rates

The above mentioned mortgage categories comprise of following mortgage types:

Standard variable rate

Applied to a loan, it allows the borrower to qualify for a rate generally cheaper than if he had chosen a fixed rate. The difference between these two types of rates can ...