Sep 21

Basic Guide To Types Of Home Mortgages

Homebuyers have a wide variety of mortgages from which to choose. These different types of home mortgages work in the same fashion, which is borrowing money to buy a home before paying it back. They differ on various aspects, such as interest rates, related charges, repayment terms and more. Some of the examples of mortgages available to homebuyers include discounted rate mortgages, first-time buyer mortgages, cashback mortgages and tracker mortgages.

Repayment mortgages

With these loans, the borrower is required to repay some of the interest applicable plus part of the funds owed on a monthly basis. This enables the homebuyer to own the property within a specified period, which is typically about 25 years. If the borrower decides to move from the home, the debt can be ported. Alternatively, the buyer can take out a new loan or repay the original before moving. This type of loan is ideal for buyers keen on fully repaying the loan by the end of the mortgage.

Fixed rate mortgages

This popular option allows buyers to take advantage of a fixed interest rate. The fixed rate benefits are applicable for a specified number of years, typically between two and five years. It is also possible for the interest rate to remain fixed for up to 10 years. The advantage of taking out this loan is that the interest does not rise regardless of the current rate. However, the borrower cannot benefit from any downward movement in the current rate.

Discount rate mortgages

These loans are more affordable but they work with the standard variable rate (SVR). The applicable terms last between two and five years. This option is well suited to anyone looking for a low-interest rate and is prepared to pay a higher rate when the SVR changes.

Capped rate mortgages

Capped rate mortgages come with a rate cap or ceiling to ensure that the applicable interest rate does not rise above a particular level. Borrowers can still benefit from a downward movement in the rate. These types of home mortgages are ideal for times when the rates are expected to rise.