If you are planning to buy a home, then you must get in touch with your bank or any other financial institution to get the mortgage of your choice. There are different types of mortgages available on the market, so you must understand what each of those is before making your final decision.
Fixed-Rate Mortgages – In this, the lender sets an APR, which is Annual Percentage Rate for the mortgage over a stipulated period of time. The APR may be a bit higher than a variable rate mortgage but will remain fixed for the entire duration of the mortgage. No matter if the interest rates go up, your EMI will remain the same.
Variable Rate Mortgages – In this, the lender’s mortgage interest rate may go up or down in accordance with the changes in the interest rates done by the Federal Reserve Bank. People opt for this type of mortgage because they believe that the interest rates would go down and they can take advantage of those lowered interest rates. It is a gamble, which can help save thousands of dollars in the home mortgage, but then, things can go south just in case the interest rates are increased.
Tracker Mortgages – It is similar to variable interest rate mortgage, but has only one difference, i.e., the margin of interest, which is set at a higher value by the lender compared to what Federal Reserve Bank offers. With the rise or fall of the base lending rate of interest, the tracker mortgage interest rate will be changed.
Repayment Mortgages – In this type of mortgage, you will have to pay a proportion of the capital element of the mortgage with the proportion of the interest that will accrue on the capital element with each monthly repayment. Repayment mortgages have surpassed endowment mortgages to become the most popular type of mortgages because if you keep up your monthly repayments, then you will pay off the mortgage at the end of the term. Although it is more expensive than other types of mortgages, at least, it gives people peace of mind.
Interest Only Mortgages – This type of mortgage is used to secure a second property. Those who opt for an interest-only mortgage will only make monthly repayments based on the interest element of the mortgage. The capital element will be repaid at the end of the mortgage term. It is also a gamble, but if the person plays his cards carefully, then he can really reap huge rewards from this type of mortgage.
Capped Mortgages – This is a combination of fixed and variable interest rate mortgage, but in this, a cap is set for a stipulated period of time. During the capped period, the rise of interest rates will not have to pay anything above the capped interest rates. In case, the interest rate falls, then the interest rate charged by the lender will also go down, hence giving borrowers nothing but benefit from both scenarios.
If you are still confused regarding the type of mortgage you should get, then you should get in touch with a mortgage broker to find out exactly as to which mortgage suits your requirements the best.