Quick Facts For Different Finance Products

Posted by on April 6, 2012 | No Comments

Personal finance is a fact of life. Everyone has to handle their credit, loans and insurance on some level, even if they do not work in finance. Everyone should have a basic understanding of a few fundamental different finance products and their purposes.

If a person is purchasing a house, they will almost always need to obtain a mortgage loan to pay for it. These loans are made by a number of business, but mainly by banks and specialized mortgage companies. These are basically large loans that use the house as the security. A mortgage is generally for a period of thirty years, but some people get fifteen or even ten year terms. Also, there are a number of different rates a person can end up with depending on the structure of the loan.

People usually go with a fixed interest rate, which cannot go up or down for the life of the loan. In general, the best type of mortgage to get is one with a fixed interest rate. Financing the loan for a shorter amount of time will save a lot of money in interest charges but will require a larger monthly payment.

Another even more widely used type of finance product is the credit card. Credit cards are essentially portable lines of credit that are widely accepted around the world. They are used to make purchases that are paid for later.

Unlike traditional loans, there is a grace period of a month in which no interest is charged if the person pays the full amount charged. If not paid, the balance draws interest. Usually, the interest rates on credit cards are higher, and if a person is making payments monthly, it will take a lot of money and time to get the balance paid off.

A home equity loan is basically a hybrid of a mortgage and a credit card. Essentially home equity loans are lines of credit that are secured with the house as a second mortgage. The loan amount is usually the equity in the house, or the difference between the value and the balance of the first mortgage.

As a person makes payments and brings the balance down, this frees up available credit just like on a credit card. The available credit can be used over and over again. These loans usually have a fairly high rate of interest and take a long time to pay off.

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