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Mortgages are a multi-billion dollar a year industry. The lending industry provides a multitude of financial products for potential home owners.
There are many different mortgage types now available to suit a wide variety of financial needs and
situations. No matter what your circumstances, you can probably find a mortgage loan that is right for you.
Here, we’ll look at the various different types of
mortgages that are widely available in today's market.
Before we begin you should know that most mortgages fall
into two distinct categories – repayment of the loan by amortization (the most common mortgage loan type being the fixed rate mortgage), and the interest only type of mortgage loan.
With the fixed amortization home loan,
your monthly payments include repayment of the principle loan amount plus the same interest rate over a period of years.
With interest only mortgages, just the interest is payed every month and you
arrange to make the actual loan repayment independently.
Here’s some information about the different types of
mortgages you will find in the credit market:
Fixed Rate Type Mortgage Loan – 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 the payments will be month
after month. The downside to a fixed rate mortgage is that if the interest rate falls you
continue to pay the higher rate. Of course, on the other side, interest rates
might rise which means your rate stays at the fixed level.
 
Variable Rate Mortgages – Variable rates are
linked to the underlying prime rate of interest. As the underlying interest rates
rise, so will your variable rate. Variable rates are usually popular
in economic cycles where the prime interest rate is generally headed downward. Of course, you can
never tell for sure what the prime rate will do, so there is a certain element of risk
attached with any variable rate mortgage.
"Hybrid" Type Mortgage Loan – Hybrid mortgages are supposed
to offer the best of both worlds. They impose a “cap” on the maximum
interest rate you’ll ever pay and this offers a security – if interest rates fall so
do your repayments, but rates can only rise to the value of the agreed upon interest rate cap.
On the
surface the capped mortgage appears to be ideal – but dig a little deeper and
you’ll see that the number of hybrid rate mortgages offering competitive rates
are somewhat limited. Here it pays to shop around for the best interest rate and terms. Ask your lenders if they offer this mortgage type and negotiate for a favorable deal if this mortgage type appeals to you.
"Discounted Rate" Type Mortgage Loan – 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.
"No Money Down" Type Mortgage Loan – This is a mortgage where the
borrower does not pay a down payment. 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 any other mortgage loan type. 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" Type Mortgage Loan – 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 from any standard type mortgage loan.
Bad Credit Mortgages – There
are even mortgages available that cater
to people who have bad credit.
Other Types Of Mortgage Loans –
Believe it or not we’ve only covered a sample of the types of mortgage loans out
there. There are many other very specific mortgages from self certification
mortgages to an offset type mortgage loan that may cover you if the standard ones do not
apply.
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