Are you looking to buy a house?
You’re in the right place! We know that buying your first home is an exciting time. But there are many different types of mortgages out there are they can get a little confusing at the best of times.
Each one has its own benefits and drawbacks that can help or hurt your financial situation. So, which one is right for you? What do you need to consider before signing on the dotted line?
Keep reading to find out the different types of mortgages so you can get the best deal!
1. A Fixed Rate Mortgage
A Fixed Rate Mortgage is an interest rate mortgage where interest rates do not change for the whole term of the loan, which can last from 10 to 30 years. This type of mortgage will have monthly payments that are constant.
The advantage of this type of mortgage is that it allows you to budget your outgoings according to the level of interest rate you will be paying.
2. Variable Rate Mortgages
Variable Rate Mortgages typically offer much shorter-term options and the interest rates can fluctuate with market conditions. A variable rate mortgage may have a fixed period of 2 years or more, during which the interest rates remain fixed.
After that time there is no guarantee that the current interest rate will stay the same, though they can be locked into another fixed term for an additional variable rate.
A tracker rate is when the interest rate of the mortgage is variable, but it’s linked to another financial indicator such as LIBOR (the London Interbank Offered Rate).
The advantage of this type of mortgage is that you can be sure your monthly payments will remain the same even if market conditions change.
3. Index Plus Variable Rate Mortgage
Another type of variable Rate Mortgage is an Index Plus Variable Rate Mortgage (also known as a +EV mortgage), where the interest rate changes according to a specific index. In this case, you can predict that your repayments will increase or decrease depending on whether that index is going up or down, but again it’s uncertain for what length of time that will apply.
4. Discount Rate Mortgage
A Discount Rate Mortgage is not as common as fixed or variable rate deals – they fall somewhere between the two in terms of interest rates. This type of mortgage is often applied for by first-time buyers and those purchasing a buy-to-let property, as the initial interest rate is lower than that of a traditional variable rate (but higher than a discount rate).
Learn how to sell house with a mortgage here.
5. Interest Only Mortgage
An Interest-Only Mortgage is a type of mortgage where payments only go towards paying off the interest that has accrued up until that point. You are not repaying any of the original loan amount – only interest.
With these kinds of mortgages, you are required to have savings set aside to enable you to repay the final value at the end of the term or face early repayment charges.
Want to Learn More About the Different Types of Mortgages?
Mortgages are a huge decision, and even the smallest detail can make all the difference. Be sure to explore each of the different types of mortgages before you decide when one is right for you!
We hope this article has been helpful in your search for the perfect home loan. If not, feel free to check out our blog for more articles on selling a home, buying a home, mortgage loans, and mortgage payments.
