| Mortgages
are a multi-billion dollar a year industry and there are different
mortgages now available to suit a wide variety of needs and situations.
No matter what your circumstances, you’ll probably find a mortgage
that suits you.
Here, we’ll look
at the various different types of mortgages that are widely available
in the market:
Before starting
you should know that most mortgages fall into two distinct categories
– repayment and interest only. With the first, your monthly payments
include repayment of the loan amount plus the interest. With interest
only mortgages only the interest is covered and the person arranges
to make the actual loan repayment independently.
Here’s some more
information about the different types of mortgages available:
Fixed Rate Mortgages – with
the fixed rate mortgage your rate is steady for a certain number
of years. The good thing about fixed mortgages is that you know
exactly what your payments will be for the fixed period. This works
well for those on a strict budget who need to know exactly what
will be payable month after month. The downside to fixed rates is
that if the interest rate falls you continue to pay the higher rate.
Of course, on the flip side, interest rates might rise which means
your rate stays at the fixed level.
Variable
Rate Mortgages – Variable rates are linked
to the underlying base rate of interest. As the underlying interest
rates rise, so will your underlying variable rate. Variable rates
are usually popular in economic cycles where the rate is generally
headed lower. Of course, you can never tell for sure what the rate
will do so there is a certain element of risk attached with variable
rate mortgages.
Capped Mortgages
– Capped mortgages are supposed to offer the best of both worlds.
They impose a “cap” on the maximum interest rate you’ll ever pay
and so offers a security – so if rates fall so do your repayments,
but rates can only rise to the value of your cap. On the surface
the capped mortgage appears to be ideal – but dig a little deeper
and you’ll see that the number of cap rate mortgages offering competitive
rates are somewhat limited.
Discounted
Mortgage Deals – Sometimes, mortgage providers
offer new clients “discounted rates” – these are rates that are
lower than their standard variable rates and they last for a certain
period. After the period the mortgage switches to the standard variable
rate. This can be a good option but you’ll need to check that the
rate it switches to is competitive.
100% Mortgages
– This is a mortgage where the borrower does not pay any deposit.
With other mortgage types, the borrower needs to put some money
down, but with 100% Mortgages, this is not required. This is a good
option if you’re unable to find money for a deposit but beware –
100% mortgages tend to be far more expensive than other mortgage
types. You may also find that most of these mortgage types tie you
in for longer periods (never a good thing) and you may be required
to sign up to a mortgage indemnity policy (again, not a good thing).
Buy To Let Mortgages
– Many people are discovering that they can increase their net
worth quickly by acquiring “buy to let” properties. There are now
specific buy to let mortgages that help people who want to let out
their properties for investment purposes. These tend to be different
to standard mortgages.
Bad Credit Mortgages
– There are even
mortgages available that cater to people who have bad credit.
Other Mortgage
Types – Believe it or not we’ve only covered a
sample of the mortgage deal types out there. There are many other
very specific mortgages from self certification mortgages to offset
mortgages that may cover you if the standard ones do not apply.
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