A mortgage simply means a legal agreement in which a person borrows money to buy a property (such as a house) and pays back the money over a period of years. Now that we all understand what mortgage is, we will be discussing the different types of mortgage that one can go for if the need arises.
Should it be that you are confused about the different types of mortgage and the one to go for, click on the More button to get the full explanation of the types of mortgage to understand the right one you should go for.
Here Are 8 Different Types Of Mortgage
- Flexible mortgage
- Tracker mortgage
- Standard variable rate mortgage
- Combination mortgage
- Interest-only mortgage
- Fixed-rate mortgage
- Discounted rate mortgage
- Home Equity Loan Mortgage
1.) Flexible mortgage
Flexible mortgage normally have terms that allow you to overpay and underpay, you can pay more or less than the monthly amount you agreed with your lender) and even take a payment break, this means that you are allowed to miss a few monthly payments if need be.
The price for this flexibility is usually a higher interest rate. And this happens to be another type of mortgage among many.
2.) Tracker Mortgage
Tracker mortgage rates are a type of variable rate, which means you could pay a different amount to your lender each month. Tracker rates work by following a particular interest rate to determine what you pay each month. Many borrowers may decide to go for this type of mortgage because it’s simple for them to pay back.
3.) Standard Variable Rate Mortgage (SVRM)
Standard variable rate mortgage is a lender’s default, no deals, or terms and conditions. Each lender is free to set their own SVRM and adjust it the way they prefer it. But when we mean to talk about specialized mortgages, there is actually no mortgage called an ‘SVRM mortgage, it’s just what you can call a mortgage out of a deal period.
After their deal elapses, so many people find themselves on an SVRM mortgage by default, which may not even be the best rate for them.
4.) Combination Mortgage
Combination mortgages are helpful for avoiding Private Mortgage Insurance if you can’t put 20 percent down on a home. normally you take out one loan for 80 percent of the home’s value and another for 20 percent of the home’s value. This is an 80/20 combination loan.
Normally the first loan has a lower fixed interest rate. The second loan has a higher rate or a variable rate.
This can sometimes be more expensive in terms of interest-wise. But look at the brighter part of it. PMI can be expensive, as well. If you can pay off the higher-rate 20 percent equity loan quickly, you may come out better off with a combination mortgage. With this type of mortgage among different types of mortgage, one can make a better choice that is suitable for him in terms of payment.
5.) Interest-Only Mortgage
Interest-only mortgages as the name suggested give borrowers an option to pay a much lower monthly payment for a period of time, after which they will need to begin paying the most important. Balloon mortgages are technically a type of interest-only mortgage.
But most interest-only mortgage options don’t require a huge sum payment of the most important payment Instead.
These payments will allow the borrower to pay only interest for a period of time. After this, the borrower will have to pay more money than they would have if they had started with the normally fixed-rate mortgage.
In the long term, interest-only mortgages are more expensive. But they can be the best choice for first time home buyers or individuals who are just starting their careers with only a little capital at first.
6.) Fixed-Rate Mortgage
A fixed-rate mortgage has an interest rate that remains the same for the life of the loan. The Rate refers to your interest rate. With a fixed-rate mortgage, your lender guarantees your interest rate will stay the same for a certain period of time which is typically anything between 1–10 years.
When this initial period elapses, you will be shifted to the lender’s default rate or standard variable rate.
7.) Home Equity Loan Mortgage
If you have a home and have some equity built up in it, you can take out a home equity loan, also known as a second mortgage. This is just another loan secured by the equity in your home. Another option is a home equity line of credit. This is a revolving loan based on the equity in your home.
These loans will actually have a higher interest rate than your first mortgage. But they can be a good choice for funding home renovations or other necessary expenses, especially in such a low-interest-rate environment.
8.) Discounted rate mortgage
Discount rate mortgage is a type of mortgage that over a set period of time, you get a discount on the lender’s SVR.
This is a type of variable rate, so the amount you pay each month can change if the lender changes their SVR, which they’re free to do as they like. this type of mortgage payment is not static because it changes over time.