Today’s mortgage industry has a place for everybody in it. The banks are working hard to remain in business, thus encouraging home buyers to buy apartments or villas with the help of mortgage loans. These loans come in lucrative packages and are joined with competitive interest rates.
Types of Mortgages:
Mortgage loans are complicated. We know that it’s easy to get confused with the variety of options available in the market. That is why we have narrowed our list to three main types of mortgages to help you decide the right one in less time.
First Mortgage loans are simple. It is the loan you are offered toward one property at a time. Your property will be held as collateral to your loan. This protects the lender in case there is an event of default by the borrower.
Second Mortgage loans are trickier in nature than first mortgages. The lender grants you access to the home’s equity, based on the agreement that you would pay them back with interest. Oftentimes, banks offer very competitive interest rates on second mortgage loans. Still, a second mortgage can turn out to be a dangerous play. If you fail to pay their debts you may end up losing your home for a lifetime.
Private mortgages create a win-win situation for both parties. It is a short-term, interest-based loan ranging from 1 to 3 years’ time. Private mortgage loans will require you to make high-interest payments each month instead of shooting down the principal amount.
Types of Mortgage Rates
Mortgage rates depend highly on the source of funding. While choosing from available mortgage loans, you should take consideration of the monthly installments and interest rates. Make sure that you can afford to repay the whole amount without overstraining yourself too much.
A fixed-rate mortgage is easy to handle as you know how much you are going to pay every month. The bank will add up the principal amount, the interest and other additional expenses together to find out the exact amount they owe to you. This sum will now be divided into equal portions and distributed evenly over monthly payments.
Variable rates will come with uncertain figures that will fluctuate every month. One month you may pay staggeringly high interest rates but pay a far more negligible amount the next month.
How Interest Rates are Calculated
The Mortgage interest rates are volatile and keep on changing frequently based on various economic factors including stock and foreign markets, inflation and unemployment rates. So, you cannot expect to get a steady interest rate on your loan.
The mortgage interest rate is calculated based on the percentage of your total loan balance. You will be required to pay the interest along with your principal payment every month.