What are the different kinds of mortgages?

In simple terms, a mortgage is a loan that is used to pay a property. Lenders will always try to diversify from the competition so mortgages can vary considerably between different financial institutions, although, most of the times the fundamentals are considerably similar. The motivate behind such a strategy is to attempt captivate niche markets with tailor made products that suit the needs of each individual.

Variable rate mortgage

A variable rate mortgage or floating mortgage as it is also commonly referred to, is a loan in which the interest rate changes or fluctuates depending on certain market conditions. The rate practiced by the lender will be affected by changes to the base rate of the central bank since these fluctuations indicate shifting costs on the credit markets. Currently, variable rate mortgage loans are the most common form of loans employed when financing a home.

Fixed rate mortgage

A fixed rate mortgage is exactly the opposite of variable rate mortgage. When using this alternative the funds borrowed will benefit from a fixed interest rate since the loan is not tied to an index.

Interest only mortgage

Just like the name suggests, an interest only mortgage is a loan in which a borrower will only pay the interest, during a certain period of time. After the interest only period is over, the borrower will start paying for the capital. The advantages behind this type of mortgage is that the borrower will benefit from smaller monthly payments in the first few years and in this way gain some financial flexibility.

Graduated payment mortgage loan

A graduate payment mortgage is a solution that entitles paying a smaller amount in the beginning and more as the life of loan progresses. Monthly payments will increase gradually over a set of time, in this way presenting younger customers with a more flexible solution since they most probably cannot afford to pay larger amounts.

Balloon payment mortgage

A balloon payment mortgage is a special type of mortgage in which the capital in debt is not completely amortized at the end of the contract. In this case, the borrower will be required to make one final balloon payment to liquidate the total amount owed.

Negative amortization mortgage

This alternative is achievable when the borrower pays less than the interest charged on the loan over a period of time. Essentially, the outstanding balance will increase over time and not decrease.

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