What Is Term Housing Loan?
If you’re looking for a home loan/housing loan, then a term option might be best for you. In order to be sure of this there are some questions that need to be addressed. We’ve put together the most pertinent ones in order to help potential borrowers get a better understanding.
What is the simplest definition of what a term housing loan is?
The purpose of any loan you get is going to be making sure you’re the right fit for it. Banks aim to minimize risk and they do this based on a thorough assessment of the applicant beforehand. Terms loans are very common for banks to give out in this case to qualified applicants. All a term loan is would be a loan that comes with a repayment schedule that’s fixed.
Why would a person opt for a term housing loan when there are potentially more attractive options available?
Borrowers who go for term loans have a pretty strong idea of what their income is and what it’s going to be years from now. These are usually blue collar people who make good financial decisions and appreciate the well laid out structure of these types of loans. Term housing loans are tough to pay down faster due their inflexibility, but lots of banks offer more flexibility even on these forms of loans nowadays.
What are some ways paying the same amount per month throughout a home loan setup such as this can be negative?
All you have to do is look at the different things that can happen during the course of a loan in order to determine what your risk is. Banks do this all the time. Here are some examples:
There’s the risk of you losing your job
Job loss is probably the number one reason people can struggle with these types of loans in the future. This is the main reason why banks like to see that you’ve been employed for a decent period of time. It means stability. It’s even better if you demonstrate an ability to save money, which would be helpful should you have to go without a job for a certain period of time.
The risk of becoming seriously ill
If you become ill, then you won’t be able to work for a while or bring in the same level of income you usually do. Savings are critical in this case, but savings come down to financial responsibility. This is why banks like to see that you have a good idea of what you spend and what you make. The ability to save money shows you’re thinking about future risk.
The possibility of having to use resources for other purposes
You never know if and when you’ll need money in order to pay for other unexpected expenses. This is why banks prefer you not to get a loan for a house that stretches you too thin. The more flexible you are then the more you have room for unexpected future expenses.
A term housing loan simply won’t allow for you to lower your loan interest by means of making advanced payments. If it’s possible at all, then you can expect to jump through a lot of hoops in order to do it. If you do decide to make additional payments with this loan type, then they’ll simply by viewed as pre-payment towards future monthly installments. It would in no way impact the total amount of interest owed on the loan.
While term housing loans are still heavily used throughout Malaysia, they aren’t the most frequently used. These days you can find other options that might prove more favorable to making a loan more affordable overall. Home buyers with a more traditional mindset will appreciate a term housing loan the most.