Know the Different Types of Mortgage Loans
This is a guest post from Sarah @financeport, a tech writer from UK and into finance
If you are buying a house or property, the first thing you need to address is finance. Don’t worry if you fall short of money to buy the property, various types of mortgage loans are available in the market to assist you. Each of these mortgage loans has different terms, policies, benefits and risks. It is necessary to educate yourselves to choose the best mortgage loan that fits your needs. It is advisable to get an added PPI policy along with your mortgage loan as you can claim back PPI to pay off your loan amount for a limited period of time, if you lose your job or are unable to work. A glossary of mortgage loan types available are provided below
Fixed-rate Mortgage Loans
A Mortgage loan in which the interest rate remains same throughout the lifetime of the loan is called a fixed-rate mortgage loan. It is easy for property owners to budget as they know the interest rate will never change and the monthly payment remains same throughout the entire life of the loan. The interest rates will be higher than other loans as they don’t change. It usually comes in terms of 10, 15 and 30 years.
Variable Rate Mortgage Loan
These loans are also called Adjustable Mortgage Loans. They can be changed every year, every six months or other term specified in the loan. The interest rates fluctuate during the duration of the loans. The interest rates are based on the changes within prevailing market rates. The borrower of the variable mortgage loan should have the ability to pay higher mortgage payments later if rates adjust upward.
Interest-only Mortgage Loan Types
Interest only mortgage loans do not mean that borrowers need to pay only interest on the loan. But, they have an option to make an interest only payment and the option is available only for a limited period of time. Some interest-only mortgages are indeed interest only but, borrowers need to pay the original loan balance at maturity.
Special Mortgage Loan Types
These types of loans are used when the owner puts the property for sale and is not yet sold. These loans can be fixed, adjustable or line of credit from which the borrower can get the funds required. The borrower uses the existing home as the security to get these loans. Bridge /Swing loans, Equity mortgage loans, streamlined-K mortgage loans and reverse mortgage loans come under this category.