Author Box
Articles Categories
All Categories
Articles Resources

The Different Types of Mortgages Available to the Home Buyer

February 15, 2012 | Comments: 0 | Views: 215

There are many different types of mortgages available to the house buyer, and as well as different mortgage products, there are various ways in which interest on the mortgage is calculated and repaid. It can be very complicated and difficult to decide which mortgage best suits a home buyer's particular financial circumstances. The type of mortgage that will be most suitable will also depend on the house buyer's future plans for the property; whether they intend to sell within a short period of time, whether they intend to rent out the property (most standard mortgages do not allow the home owner to rent the property and so a particular mortgage for landlords is required).

Most people decide to take out a fixed rate mortgage so that the interest rate is fixed at a particular percentage of the loan for the entire length of the mortgage period. This ensures that the borrow knows exactly what he or she must pay each month and it is much easier to budget for the mortgage repayments. This type of mortgage is therefore the most popular for this reason and about 75% of all mortgages taken out are fixed rate type mortgages. The mortgage period can be ten years, fifteen years or even thirty years. The advantage of this type of loan is that the borrower knows exactly what she or he must repay each month for the set time frame. The disadvantage is that these types of mortgages usually have a higher interest rate than other mortgage products and because the interest rate is fixed for a set number of years, if in that time the interest rate goes down, the home owner is stuck making higher payments than might be available with other mortgage products.

An Adjustable Rate Mortgage or ARM typically has a set time period at the start of the loan (usually a year or two) when the interest rate is fixed and often at a lower rate than the current market interest rates. However after this period the interest rate changes with the market rate and so repayments after the initial introductory period will be higher. With a one year adjustable rate mortgage, the interest rate changes each year after the initial fixed rate period. This type of mortgage carries a lot more risk as the borrower does not know from one year to other what the interest rate will be and consequently what his or her monthly repayments will be. This makes budgeting for the mortgage repayments much harder. Because this type of mortgage carries an additional risk, the house buyer can usually borrow more money and so afford a more expensive house. Often caps are put in place so that the interest rate cannot go up or down outside certain parameters. There are also three and five-year adjustable rate mortgages.

For those considering reselling or refinancing within a short period of time, a two-step mortgage might be a better option. This type of mortgage has a fixed interest rate for the initial phase of the loan and then another interest rate for the remainder of the loan period. The interest payable will be determined by the current market rates and so the home buyer risks the interest rate going up after the initial fixed period. But if the borrow is planning on selling the property before this adjustment date then this might be a good option to secure a mortgage at a low interest rate.

Home buyers can also decide to go for an interest only mortgage whereby he or she only pays back the interest on the loan each month. The principle loan amount is not paid back at all during the mortgage period and so when the mortgage expires, the borrower still owes the full capital amount of the loan. This has the advantage of lower monthly repayments, however at the end of the mortgage period, the home owner must find a way to pay back the original loan amount, usually through the means of some investment product such as life insurance or an endowment policy. However, if the investment product has not performed well or the market as a whole has suffered, the home owner may not get enough funds from the investment vehicle to repay the loan. This was the case with many peep mis-sold endowment policies in the 1980's and 1990's. Usually borrowers are given the option to have an interest only mortgage plan for a set period at the start of the loan but then after this time, the home owner must start paying back the principle loan as well as the interest and so repayments will rise steeply. Usually this type of mortgage has a higher interest rate than a standard repayment mortgage because of the interest only period at the start.

It is vitally important that anyone considering taking out a mortgage speaks to a qualified mortgage advisor about their options and what mortgages are available to them and most suited to their particular circumstances.

Rachel Gawith runs TheTravelBug website for independent advice on buying in Bulgaria, gained for her 5 years experience in the property market there and on the ground experience of living in central Bulgaria for close to six years.

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Interest Rate


Mortgage Period


Mortgage Products





The 3 Month Payday Loans is most suitable options for the people who do not possess assets. There are a variety of loan options for the people who are willing to pledge assets against the cash

By: Cameron white l Finance > Personal Finance l July 09, 2013 lViews: 560

For many people, bankruptcy can make their world fall apart. The apparent loss of reputation coupled with the inability to take financial decisions can deter anyone from thinking clearly. But all is

By: noragwilt l Finance > Bankruptcy Lawyers l November 18, 2012 lViews: 303

If you are availing payday loans with monthly payments, it is easy for you to obtain quick money from online lending companies.By getting the best deals of loan, you can save money in terms of

By: Malen Cheks l Finance > Loans l November 16, 2012 lViews: 288

Loans online have become the popular source of income and people can make smart decision of taking it.Now, don’t go anywhere and sit in your home silently. Such deals would bring you money without

By: Marsh Jone l Finance > Loans l November 13, 2012 lViews: 288

Loans for the unemployed would let you feel comfortable with your unstable conditions due to jobless period.If you compare the rates of a few lenders, you would definitely get the suitable lender to

By: kelse roy l Finance > Loans l November 13, 2012 lViews: 467

By taking cash advance for bad credit, it is easy for you to improve your credit status. This loan is useful to relieve financial stress. This loan is totally free from credit verification and

By: Honard Nork l Finance > Loans l November 09, 2012 lViews: 300

Here is some of the common home loan terms that one comes across while applying for a home loan. What is an E.M.I?

By: Subhrajeet Talukdarl Finance > Home Equity Loansl May 31, 2012 lViews: 183

Are you confused about investment home loans and how to find the best option for you? This article gives you 7 hot tips on how to find the best option for your personal situation so you can save

By: Julian Thorntonl Finance > Home Equity Loansl May 31, 2012 lViews: 171

Purchasing a home for you and your family doesn't have to be difficult. There are easy ways to go about it. It is wise though, to arm yourself with knowledge before you proceed to do so.

By: Sabrina A Becnell Finance > Home Equity Loansl May 26, 2012 lViews: 163

A home equity loan allows a homeowner to use the equity they have built up over several years living in their home as collateral for a second mortgage. Homeowners can essentially inject liquidity

By: Rocky C Rhodesl Finance > Home Equity Loansl May 25, 2012 lViews: 186

Under the Islamic law called sharia, all Muslims are clearly prohibited from enjoying money from riba or surplus value without counterpart. In simple words, one is not allowed to pay or receive money

By: Ilham Syahl Finance > Home Equity Loansl May 24, 2012 lViews: 177

We explore some of the variations in the biggest home loan market of all, the United States of America, and how these can impact on the overseas investor. I'll explore, the variation in lender's

By: Stephen John Brownl Finance > Home Equity Loansl May 23, 2012 lViews: 188

For many years long-term fixed rate mortgages have been the backbone of the UK mortgage market, ensuring your repayments remain the same for ten years or longer, allowing you to budget easily for

By: Rachel Gawithl Finance > Home Equity Loansl April 15, 2012 lViews: 207