Understanding Different Types of Mortgages

June 13, 2012 - PRLog -- Mortgage loans should be fairly straightforward – you borrow money to finance the purchase of a house and pay interest. After making a few inquiries, you will realize that it is not that simple. Banks and credit unions are constantly extending and updating their range of mortgage products. The list of loan types is long enough to baffle even the most determined, but the most important question is how you will pay back the interest and the principal you borrow. You can either pay the whole amount at the end (endowment or interest-only mortgages) or repay a little at a time (repayment mortgage).

A repayment mortgage is a loan whereby the monthly payments reduce the outstanding balance and pay a portion of the interest charges. The mortgage is cleared at the end of the term. This type of loan is considered the least risky and easy to understand. However, you should make timely payments or the financial institution may repossess your property. Borrowers who choose an interest-only mortgage are paying interest only. The principal is due at the end of the term. Interest-only mortgages are popular among first-time buyers and buy-to-let investors because they are cheaper compared to other types of financing. The endowment mortgage is another variety whereby the borrower uses an endowment policy to save enough money for repayment at the end of the term (it is usually between 20 and 25 years). Other types of mortgages to look into include multiple term mortgages, equity mortgages, preapproved mortgages, secured lines of credit, etc.

You will be paying interest on any type of loan, and mortgages are no different. The only difference is the interest rate you are offered – capped rate, variable rate, fixed rate, discounted rate or a cash back deal. Whatever mortgage loan and interest rate you choose, there are certain questions to consider. Can you afford to make a lump sum payment? Do you need mortgage insurance? Are there redemption penalties, and what happens if you are unable to repay the loan in full? Make sure you read the fine print and understand the loan terms. To read more about mortgages please visit: http://www.canadabanks.net/