A mortgage is a type of loan that can be availed by a person who buys an immovable property as a means of raising fun using the existing property. In other words, you are going to use the property to secure the loan. There are various types of mortgage loans and if you want to know them, then keep on reading below.
Fixed Rate Mortgage Loan
With this type of mortgage, the interest rate is not changed throughout the life of the loan. It is an advantage to home owners because their loan will not be affected even if the interest rate goes up. However, if the interest rate falls, then the property owner cannot benefit from it. It also has a set term, which is around 12 to 15 years.
Variable Rate Mortgage Loan
The interest rate is agreed only on the first year. However, the interest rate will change throughout the remaining years depending on the rate that is agreed upon the contract. You can benefit from the interest rate cuts. It is also an advantage because it has a longer maturity period. The term can range from 25 years to 30 years.
Joint Interest Mortgage Loan
The loan’s interest rate is fixed for a period of two to three years. The rate on the following years depends on the prevailing condition in the market. If you look at it, it is more like a combination of the fixed loan and variable loan, but the repayment schemes and early termination fee is the same to that of the variable mortgage loan.
Flat Fee Mortgage Loan
As the name suggests, there is a flat rate. It is quite similar to that of the fixed rate loans because the interest rate is the same throughout the life of the loan. Now, what is the difference? Well, if the rate goes up, the borrower will not be paying more interest, but the repayment scheme is extended for a particular period of time.
On the other hand, if the interest rate falls down, then the repayment scheme will be shortened. However, there is a level of uncertainty with this type of loan. You will not know the actual term of the loan. On the positive note, this type of mortgage gives you the confidence and the guarantee that the interest rate will not change throughout the life of the loan. So, you will not be affected of the skyrocketing interest rate.