What are the five types of home loans in Flanders?
- Fixed rate mortgage loan
- Variable rate mortgage loan
- Unpaid interest
- Construction Loan
- Bridging credit
Mortgage loan
This form of home loan is the most common. If the borrower does not repay the loan, the lender can sell the collateral, for example. There are also two different forms of these loans: fixed rate or variable rate. With a fixed interest rate, the amount you have to repay remains the same every month. With a variable, the amount depends on the interest rate at the time. It is interesting to choose a fixed interest rate if they are low at the time you take out the loan.
- Annuity loan: In this loan, the borrower pays monthly payments that include both interest and principal repayment. Initially, most of the payment consists of interest, but as time passes, the proportion of repayment increases.
- Linear loan: In a linear loan, the borrower pays a fixed amount of capital each month, along with the interest due. As a result, the outstanding capital decreases each month, resulting in a gradual decrease in monthly payments.
Pros and cons of mortgage lending
In this type of home loan, the collateral serves as security for the lender. This allows for lower interest rates compared to loans without collateral. In addition, choosing between a fixed or variable interest rate offers flexibility. A fixed interest rate can provide stability through constant monthly payments, while a variable interest rate allows you to take advantage of declining interest rates.
However, if the borrower cannot repay the loan, they risk losing their property, as the collateral can be sold to pay off the debt. With a variable interest rate, monthly payments can fluctuate depending on the interest rate, which can make it more difficult to plan the budget.
Repayment-free home loan
In this loan, the borrower pays only interest for a certain period of time, without repaying the capital. At the end of the term, the entire capital amount must be repaid. This type of loan, though, will never be taken out independently, but rather in combination with a form of repayment
Advantages and disadvantages of repayment-free home loan
Because the borrower pays only interest over a period of time, monthly payments tend to be lower than for loans with repayment. At the end of the term, the entire capital borrowed must be repaid, which can lead to higher overall costs. If the value of the collateral declines, the borrower may end up with a residual debt.
Construction Loan
This home loan is used to finance new construction projects. The amount borrowed is disbursed in stages as construction progresses.
Advantages and disadvantages of construction loans
This loan allows builders to receive the money they need in stages as construction progresses, paying only for what is needed at that time. Construction loans can only be more complex than standard mortgages because of the phases of financing and the need to work with building inspectors and contractors.
Bridging credit
This type of home loan bridges the period between the purchase of a new home and the sale of an existing home. It is often a short-term loan.
Advantages and disadvantages bridge loan
A bridge loan provides a temporary financial solution for borrowers who want to buy a new home before they have sold their existing home. They generally have a limited term, making it important that the existing house be sold quickly to pay off the loan. Therefore, if the existing house is not sold quickly, the borrower may be in financial difficulty.
Want to learn more about mortgage loans? Read more about it.
Sources: Immoweb, mortgage store & residential mortgage
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Deferm, S. (2024, Jan. 31). 5 types of housing loans. Apartment.com. Accessed on (date XX/XX/202X), from https://www.appartement.be/5-soorten-woonleningen