The Different Types Of Home Loans

You would be forgiven for thinking that there really was only one type of mortgage loan. After all, the concept is the same in each case – the loan is secured by the property and you get to pay it back over a period that makes it affordable for you. The bank makes its money through the interest you pay and, in theory, it will not lose out, even if you default on the loan. Here is more information so that you know what each type means to you. There are a number of different types of other loans but these are the ones most likely to be encountered.

Let us start with your basic mortgage. This is straightforward as they come. You get the loan, and need to repay it over the selected term at a fixed rate of interest. Your installments never increase or decrease and you will always know what amount you will need to pay. Good to get when the interest rates are lower, not so great when the interest rates are higher. There is not a lot of wiggle room with these loans.

Newer to the market was the mortgages with prime linked rates. The advantage of these loans above the former is that your rate decreases when the prime lending rate decreases. The problem is that your rate can also go up – you may not be able to say how much you will always pay. Some finance companies and banks will allow an upper and lower cap to by put in place. At the right time, this is a great option to select but timing really is everything here.

Some mortgages allow for you to repay only the interest for a certain amount of time. This allows those with lesser incomes to also be able to own their own homes or to access financing that would not otherwise have been available. This can be a really expensive form of financing and you could theoretically pay unending amounts of interest – not the best option overall.

Another less desirable form of financing is the balloon payment form – this was first seen in the motor vehicle industry and it does help people who cannot afford traditional bond financing. The problem is that you are left with a huge residual at the end of the term that needs to be settled. You would either have to fork over the money, remortgage or sell the house. There is a lot more interest paid in this type of loan and I would not recommend it unless there was no other way.
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Last but not least is my favorite – the access mortgage. This allows you to use you mortgage as if it were a savings account. That makes a lot of sense financially and can help you to save a lot of money in interest over the life of your bond as well.

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