Mortgage Types Explained
Mortgage loans are often used to obtain money to borrow against the actual value of a property you already possess. The amount of the mortgage and the terms of repayment. The APR or Annual Percentage Rate. The mortgage’s type, i.e. fixed or variable interest rate.
Mortgage loans often take the form of a fixed-rate loan, meaning that the amount you borrow is determined at the time the loan is made. In this case the amount owed does not change over the life of the loan and the interest-only term lasts the entire term of the loan, so there is no longer a need to consider adjustments to the monthly repayments. However, a balloon loan is another option available to consumers who wish to pay off their mortgage early, or whose current interest rates have become low enough to allow for an early repayment. A balloon loan is a repayment of principal with an agreed period for the repayment of just a portion of the principal borrowed. This allows you to pay less towards your mortgage whilst still paying off the entire principle.
When calculating your mortgage payment you will find that interest only repayment schedules work out cheaper when your principal balance is small. Once your principle balance has grown beyond this level, you may see little benefit from making the lower monthly payments. As your interest only term reduces you will start to repay less in total and as your principal balance increases again you will be paying more. The opposite occurs when you choose a repayment term that allows the principle balance to grow slowly and you will find that your monthly mortgage payment is gradually decreasing. If you choose a mortgage payment that is too small, you could still end up owing more on the home than the home is worth.
There are two other types of mortgage, which are known as fixed-rate mortgage and an adjustable-rate mortgage. In the former you agree to a specific interest rate, while in the latter you can choose to have the interest rate move up or down. With a fixed-rate mortgage the borrower knows exactly what their monthly mortgage payments will be each month. The downside of this type of mortgage is that should interest rates drop further in future years the borrowers fixed mortgage payment will no longer be the same amount they had at the start of the agreement. Should the lender wish to increase the amount of mortgage, the borrower must agree to it. On the other hand, should the interest rates fall then the borrower will have to cut back on the amount of mortgage that they pay each month.
An ARM is similar to a fixed-rate mortgage, however the lender adds an additional interest rate onto the principle borrowed. They do this so that if the borrower should default on their loan the lender can recover the lost money. Some ARM loans have features to protect the lender in the event that the borrower should stop making payments. The lender can add late payment penalties onto the loan, which means the home loan will increase in cost over time. However, with an ARM loan the monthly payments are fixed and do not vary until the loan has been paid off completely. The advantage of an ARM loan is that the monthly payments can be reduced if the borrower has good credit or other collateral.
There are mortgage loans that can be taken out online. When you take out an online mortgage you will still be able to talk to a loan consultant who will explain the terms and the process of borrowing for mortgage loans online. However, you won’t be able to see the quotes for the loan in real time, which makes it easier to make the right decision. You will need to make sure that you understand all the costs associated with taking out the mortgage loans before committing to anything. When you borrow online you won’t be able to see the quotes until you actually sign up for the mortgage loans.
When you buy commercial property, you need to think carefully about the type of mortgage that you will secure. If you are buying a property to rent out to tenants then you will be looking at different mortgage options. If you are looking at a commercial property as an investment then you may want to talk to a mortgage broker who will be able to give you the best advice on what is best for your needs. It is always a good idea to talk to a mortgage broker as they will be able to look around for the best deal on your behalf. They will be able to compare several mortgage options with you and find the one that is most suited to your needs.
Fixed-rate mortgage deals tend to be better for borrowers who are certain about when they want to leave their property. These mortgages will stay in place until the set date unless the borrower decides otherwise. However, the repayments will not rise each year and this can be an issue for some people. Borrowers who want to spread out the amount of money they borrow over a long period of time may find that fixed-rate mortgages to suit them best. Homeowners who want to spread their debt over many years can benefit from variable rate mortgages, which allow the borrower to move between fixed-rate and variable-rate mortgage payments.