Different Kinds of Mortgages
Nearly every homeowner is aware of what a mortgage is, but there are many people who have not yet ventured into the realm of home ownership, who know little about mortgages.
Those people, who have purchased homes of there own, often think of their mortgages in terms of one of their major expenses, and wisest decisions. They have acquired a loan in respect of which they have given the loan provider a mortgage on a property, usually their prime residence. Therefore, in its simplest form a mortgage is a loan secured on a property.
Fixed Rate Mortgage - Adjustable Rate Mortgage
There are many different kinds of mortgages, to suit personal circumstances, and/or investment intentions. Two common examples are fixed rate mortgages and adjustable rate mortgages, but there are numerous variations, which differ in the ways they are set up. With a fixed rate mortgage you can be sure that your repayments will remain the same for the period of the loan, but an adjustable rate mortgage fluctuates with market rates. It is more of a gamble, but is preferred by some borrowers for whom it has proved to be advantageous.
Buy To Let Mortgages
There have been an expanding number of investors, who have taken out different kinds of mortgages, to invest in properties that they do not intend to live in themselves. They participate in what has become known as the 'Buy to Let' market, whereby they purchase real estate to rent out to other people. They get a return on their investment from the rents they receive from their tenants. They may also hope to benefit from rising property prices, but that does not always materialize, and some buy to let investors have lost a lot of money.
Different Kinds of Mortgages
Different Kinds of Mortgages
Fixed Rate Home MortgageWith a fixed rate home mortgage the interest rate is set for the period of the loan. Loan terms may vary but are frequently for periods of 15 or 30 years. It is easy to grasp, that a fixed rate home mortgage provides the opportunity of knowing exactly what your outlay will be, for the loan term. Many borrowers prefer such an arrangement, to the potentially riskier, adjustable rate home mortgage.
Longer term fixed rate home mortgages are attractive to some borrowers. When the amortization period is longer monthly repayments are lower, but you have to pay for the privilege of the longer term. Therefore, the total interest paid will be considerably greater, and the initial reduction of the capital sum borrowed will be less, than with a shorter term. This means that if you chose to sell your home within the first few years or the mortgage contract, most of the loan would remain outstanding to be paid. Of course, if the property had appreciated in value, there would still be the possibility of a useful gain.
Fifteen year fixed term home mortgages have the advantage of a shorter amortization period. As a result of this borrowers have a more substantial build up of equity in their homes, and overall interest charges are considerably lower. The major disadvantage of a shorter term is reflected in higher monthly repayments. However, there are many borrowers who are able to use such a loan to pay off their mortgage, at as early a date as is suited to their personal circumstances.
Fixed Rate Mortgage
Fixed Rate Mortgage
Home MortgageHouses that are offered for sale may require down payments that may be unaffordable to some prospective buyers. However, there are various types of home mortgage that may assist with initial outlays. Loan sources, including banks, will need clients requiring funds to buy houses, to enter into home mortgage contracts.
Different kinds of home mortgage are available, and it is up to individual borrowers to secure the best deal, suited to their own particular circumstances. The terms for a home mortgage differ in line with overall economic trends, that influence such issues as interest rates, in the mortgage market.
Adjustable Rate Home MortgageWith an adjustable rate home mortgage, the rates are adjusted regularly according to market trends, typically after the first year. Compared with a fixed rate home mortgage an adjustable rate home mortgage usually has a lower initial rate of interest. When prime rates fluctuate, the interest on an adjustable rate home mortgage will increase or decrease proportionately. Therefore, borrowers need to be aware that there is an added speculative factor, to this kind of loan.
Deciding whether an adjustable rate home mortgage is right for you depends on your financial circumstances, and other matters such as job security. There are risks regarding unforeseen rises in mortgage rates as specified above. Although many borrowers have benefited from adjustable rate home mortgage loans, it is up to individuals to decide whether their personal circumstances will allow them to meet any eventuality. Our next blog will cover Fixed Rate Home Mortgages.
Mortgage ProcedureSeeking a home mortgage usually involves an individual or family unit, a residential property, a considerable amount of money, and a bank official or mortgage broker. In many instances, banks and other financial institutions complete loan procedures quicker than mortgage brokers. The bank is dealing with you directly, but a broker is negotiating between a mortgage lender and a client. It is a specialized time consuming operation, and a proportion of the initial fees will be due to the broker. However, it does not necessarily cost the client anymore because in the long run the expertise of the broker, and his detachment from specific sources could secure a better deal.
Because they deal with loans from a variety of sources, mortgage brokers may be able to obtain funds on your behalf that would be difficult to secure from other sources. Banks might be more rigid in assessing credit scores, although there have been recent incidences where even their judgment has been seriously flawed. Such occurrences can result in dire consequences for banks and customers alike.
Obtaining the right mortgage to buy the right house is one of the biggest quests you will have to make. It can be a life enhancing, financially rewarding experience but there are many pitfalls you should strive to avoid. Seek advice from mortgage advisors, real estate agents, brokers, and relatives and friends who are happy with recent property purchases.
Please peruse our web pages for information regarding many of the different types of mortgages. Then be sure to discuss your requirements with a reputable and qualified financial advisor.
Mortgage Brokers And Mortgage LendersIt is entirely feasible to negotiate a mortgage as a direct loan from mortgage lenders, such as banks, building societies, credit unions or other sources, through your own endeavors. However, there are so many different types of mortgages available, that lots of people seek the assistance of mortgage brokers, who are specialists in securing the best deals for individual circumstances.
Banks and other mortgage lenders have their own financial advisors, but they are naturally biased towards their own particular products or types of mortgage. On the other hand mortgage brokers are not tied to mortgage lenders, and are able to shop around on your behalf. In fact they will be aware of the best deals without too much searching, and will usually be in a position to provide a range of options, tailored to individual circumstances.
Do Mortgages Make MoneyMortgages make money for banks and other mortgage lenders, and they are one of the major factors in the economies of developed nations.
For most people who want to buy a home of their own a mortgage provides the means. It provides the opportunity to obtain money and in many instances mortgages make money for the borrower as well as for the loan provider. The trend in property prices is usually upwards and is sometimes known as the property ladder. However, as has been vividly portrayed by the American sub prime property market, when the trend is downwards it can be a game of snakes and ladders!
When you are seeking to buy a new home you need a lot of money, which is where the mortgage comes into the equation. Mortgages are undoubtedly the oil of the property market, and when they are readily available at favorable rates demand is stimulated. The trouble is that when mortgages are too easy to obtain some people over extend themselves. They may borrow more than they can really afford to repay, and if there is a financial downturn they are in danger of becoming engulfed in debt.
It is true that "There is no place like home", and it is not everybody that approaches house purchase speculatively. However, there are not many who object to making a profit, even if it is only on paper. Some people will be satisfied with one mortgage and one house over the period of their lives, whereas others will purchase many houses, and be involved with as many mortgages.