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Purchasing a new home can be very costly. Fortunately for
us, we can turn to the bank for a mortgage loan to help us out. Mortgage loans
allow us to pay for a home in installments.
After you apply for a mortgage, the mortgage lender will hold onto the
ownership of the property till you as the buyer can pay the mortgage off.
However, you can still occupy the property as if it were your own.
There are a number of mortgages on offer and you may want to choose the one
which best suits your needs.
Fixed rate mortgages
With this package, your repayments are fixed and there will be no change as to
the amount you are required to pay even if you are struggling financially.
Often there is a penalty involved if you do not pay on time or if you end the
mortgage early.
Variable rate mortgages
This type of package seems to be very popular with home
owners. In this case, the lender sets what the interest rate is which allows
for more flexibility in repayment. However, there may be a delay as the
mortgage provider might change the rates from time to time.
Tracker mortgages
These mortgages are set at a fixed percentage but they
change over time to match rate changes made by the bank. What this means is
that your payments may increase if the mortgage rate rises. However, you will
pay less if the rate decreases. If you think that the financial climate is not
doing well and this would cause the mortgage rate to decrease, then this is a
good package to gamble on.
Offset mortgages
This package is a good solution if your current or savings
account is on credit. If you read through the terms and conditions of an offset
mortgage, your balance will cancel out some of the borrowing and you'll just
need to pay interest on what's left. This type of mortgage can be risky because
if you spend any of your savings, then the amount of interest-free borrowing
will decrease. However it is a good way of keeping payments down if you expect
to be in credit over the full term.
Repayment mortgages
This type of mortgage will guarantee you ownership of your
home in the long term, but there is just one catch- repayment mortgages cost
more. Monthly repayments will go towards clearing your interest fee and paying
back your initial borrowing. This package is good if you are facing financial
problems or if you expect a wage increase in the future.
Interest only mortgages
In this package, your monthly payments cover the cost of the interest, but you do not have to pay off the capital value of your home. This is a good way of keeping repayment costs down. However, in the long term you will be required to pay off any a certain amount of money. Usually, this will be the amount you borrowed initially. If you cannot pay the remainder of what you owe, then you stand the risk of losing your house.
