Different types of mortgage

Thinking about taking out a mortgage loan? Then, know the different types of mortgage and decide which one is best for you.

09:18 26 July 2013

There are different types of mortgages that are offered to homebuyers. Some of them are the following:

1.    Fixed rate mortgage. This is also known as the “traditional” mortgage plan and this is the most popular among homebuyers. This offers fixed interest rates and monthly payments that are determined even before the loan is finalised.

The good thing about this mortgage is that there are no unpleasant surprises. Regardless if interest rates increase, you will still pay the same amount of money every month throughout the term of the loan.

2.    Adjustable rate mortgage. This type of mortgage begins with fixed rate for a specific period of time, which is usually 6 months to 5 years. After that, the lender may adjust the rates to reflect market rates. If the rates go down, it will mean lower monthly fee for borrowers.

3.    Balloon mortgage. This is where the borrowers pay interest rates and monthly payments for a fixed period of time. After that, the borrower must pay the loan back in its entirety.

4.    Interest only. This is the type of mortgage that will allow you to pay only the interest for the entire loan term. This would mean lower monthly payments. At the end of the term, you’ll still owe the same amount of money that you need to repay right away.