Mortgage is an efficient way of expecting finance when you cannot afford to purchase a house with the limited funds you have. However, to enjoy the true benefits of home loan, you must get insight into the types of mortgage to find the right one for you. Although, different lending institutions offer numerous finance alternatives that come with distinct terms and conditions, below mentioned are the basic home loans that one must make sure to consider before taking the final decision of choosing the most suitable option for him.
Fixed Rate Mortgage
As it is clear from the name itself, fixed rate mortgage is a loan that offers fixed interest rate throughout the term of the loan. It means the tax to be paid on the borrowed amount is constant. A fixed rate option, however, offers a relief to home owners that they remain unaffected by the frequent changes in interest rates. On the contrary, the main downside of this alternative is that the borrowers would not be benefited from low interest rates when the market experiences the same.
Another characteristic of such loans is that they come with set term. Moreover, you might be charged with penalty if you plan to repay the debt early. Remembering this vital if you plan to utilize a chunk of your savings to decrease the debt amount or period.
Variable Rate Mortgage
Also known as floating rate mortgage, this financing option offers agreed interest rate for the first year. For the rest of the term, the rates keep on changing as per the terms and conditions specified in the contract. The major benefit of this is you can save a lot when the rates are low in the market as you would be required to pay lower monthly payments for the entire period. Such loans, however, come with longer maturity period.
Joint Interest Mortgage
In this type of financing option, the interest rate continues to be fixed for two or more years, following which, the rates become variable and are adjusted as per the market trends. This plan merges the advantages and disadvantages of variable and fixed rate financing options. As far as early termination fees and repayment terms are concerned, they are similar to that of a variable rate home loan.
Flat Fee Mortgage
Flat fee loan type is described by flat rate. Almost similar to fixed rate finance, this financing option allows the borrowers to make same interest payment regardless of the existing market trends. However, what makes it different from a variable rate mortgage is that when the rates are high, rather than paying bigger installment, an extended repayment period is offered to the borrowers, which is again shortened when the rates fall. The term of finance is unknown to the borrowers which make the biggest disadvantage of this loan type.
To find out a right mortgage for you, understand the merits and demerits of each financing option and evaluate your needs. This will not only help you in securing the best possible deal, but will also prevent you from defaulting on loan.
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