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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.
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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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