Construction Loan: Remodel your Home Without Any Burden

By: Johns Tiel

Everyone wants their house to be comfortable enough to accommodate every member of the house. If you want to incorporate some changes in your house and start some construction for the purpose, you will require a good amount of money. In case you do not have the necessary amount, you can borrow a construction loan and work according to your needs.

Construction loan is usually called a story loan. This is so because the lender of the loan wants to know the actual 'story' behind the loan meaning that where you want to utilize the money, why you need the changes, how you plan to accomplish it, etc.

Being a temporary secured loan, it would require the borrower to pledge this house as collateral to borrow the money. Moreover construction loan is an interest only loan which requires the borrower to pay only the interest during the time of construction of the house.

While borrowing a Construction Loan, the borrower should be very particular about the rate of interest. He can receive the loan rate in two forms, locked interest rate or variable interest rate. Through the variable rate of interest, the borrower can take up the loan and the rate may rise during the course of construction of the house.

When the borrower takes up the locked interest rate option he should be careful about the other expenses that are locked in the loan amount. These hidden expenses can amount to great sums of money and can cause the borrower heavily. If the borrower is being offered low rate of interest for locking, he should get it in writing from the lender so that the lender is not able to back out from his commitment of the rate.

Construction loan is a short term loan with the repayment term of about 6 months to 12 months. During this term, the borrower can get his house constructing completed and also repay his construction loan back to the lender gradually.

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