When you are looking to get into the property market, often a mortgage can become the center of the transaction. The type of mortgage you get determines whether you can actually buy a house and retain its ownership in the longer run. In order to make informed decisions, you need to understand the different kinds of mortgages available at your service.
First Mortgage
The first mortgage is the loan that an individual takes from a lender in order to purchase a house. This loan is secured with interest and the ownership rights of the property. It is to be paid in monthly installments over a fixed or variable period of time –depending on the conditions determined by the lender.
Second Mortgage
The second mortgage is very similar to the first. It is also a loan that is secured with interest and the ownership rights of the property. Second mortgage is the second loan you may take in accordance with the equity of your home. The market value determines the amount you can borrow. Many use this form or mortgage to make repairs and alterations to their home.
Private Mortgage
A private mortgage is very different from the two listed above even though the base concept of lending/borrowing is the same. Private mortgages are loans taken from private investors or people of your family. They require less documentation, may have varying rates and monthly payments.
Just like there are different types of mortgages, there are also drastically different kinds of rates that are applied to loans. The most common include the following three:
Fixed Rate
When you get a mortgage that is a fixed rate mortgage, then that entails there will be a fixed rate of interest that will be applied to monthly payments. It would also entail that the duration of the loan is fixed and it cannot be extended.
Variable Rate
Variable rates are not fixed in nature thus the interest payments you have to make may become different every month. Variable rates are adjustable but only above a specific rate, determined at the time of borrowing by the lender and the borrower.
Interest Only
The interest only mortgage will require the borrower to pay the interest on a monthly basis. It would mean that every month, you will give the same amount of money. This would leave the payment of the mortgage for a later date. Such loans have a wider time frame within which they have to be repaid, often in 10s of years. Mortgage payments are usually high in nature which is why this makes interest only rates suitable for first time home buyers since this is a fixed, controlled and affordable way to go about buying a new house.
