Mortgages Overview

Mortgages have always been associated with high cost of home ownership. It is true that in the past, mortgages were issued on the basis of credit worthiness. This meant that the lender was concerned only about the borrower’s capacity to repay the loan, leaving the lender’s decision based only on the equity in the property. However, the times are changing. Nowadays, a mortgage lender will want to know more about you and your ability to repay the loan. This has caused the changes in the mortgage sector, with more competition leading to better deals and lower rates of interest.

The basic difference between the two mortgage types is that the former needs to be paid off before the end of the loan term while the latter does not require any payment towards it. In general, the longer the mortgage term, the more you will pay towards it. However, the advantages of mortgages lie in the flexibility they offer. Here are some of the more common mortgage terms that affect your mortgage loan:

Fixed rate mortgages: The fixed rate mortgage is one of the most popular types of mortgages today. Here, the interest rate is locked for the entire term. While this helps the borrower to lock in an interest rate, this also has a drawback. Since the borrowing money is not able to fluctuate, it becomes easy to default on payments and wind up with the property at the losing side.

Floating rate mortgages: These are mortgages that allow for flexibility in monthly payment amounts. Unlike fixed-rate loans, the amount payable is not set for the entire loan term. Instead, it is subject to adjustment according to the increase or decrease in the base rates. However, this type of mortgage allows you to make the maximum use of your tangible assets.

Indexed rate mortgages: These are mortgages that lock in a certain interest rate. They are ideal for borrowers who would like to take ownership of the property when the rates are rising. When the mortgage rates rise, the homeowner is protected by the rate. This ensures that the monthly payments remain at the same level and do not erode with inflation. In addition, while the interest paid by the lender is tacked onto the actual interest amount, this type of mortgage is considered less risky as it is easier to calculate the actual interest that the lender will charge against the loan.

Short term loans: These are mortgages that can be taken out within a short period of time. Typically, they are used for smaller home improvements, such as installing a new roof. Homeowners can choose to pay back their loan in three to five years, depending on their personal circumstances. This type of loan usually allows for flexible repayment options that can help homeowners spread out the cost of their monthly payment. Additionally, these shorter term loans usually do not require a credit check, which makes them perfect for first-time homeowners as well as those who have experienced financial setbacks.

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