Banks, credit unions, building societies, and other financial institutions offer different types of mortgages with fixed, variable, and tracker interest rate. Unlike unsecured loans, mortgage loans use the mortgaged piece of real estate as collateral.
Endowment Mortgage
This is an arrangement whereby the applicant uses an endowment policy to save enough money and pay off the outstanding balance. The term is typically between 20 and 25 years. If the borrower passes away before the term, the lender has the right to retain the real estate. This is the reason why endowment mortgages are not popular.
Interest Only Loans
With this type of financing, the borrower covers the principal at the end of the term. Regular payments are made toward the interest charges. This loan is popular with first-time homebuyers and investors. The reason is that the monthly payments are more affordable.
Fixed Rate Loans
Also known as repayment mortgage, this type is the most common and easy to understand. The borrower makes payments toward the interest and principal on a monthly basis. The financial institution has the right to reposes the property in case of default. Many applicants choose this type of loan because payments are more predictable, making it easier to develop and stick to a budget. The adjustable rate mortgage is another variety that comes with a variable or floating interest rate. Thus the interest charges paid vary with rate fluctuations. Whatever type of loan the borrower chooses, it usually changes to a floating interest rate at some point during the term.
Expat Mortgages
Some building societies and other financial establishments also offer home loans to non-residents and expats. Borrowers can choose from three options – they can either choose a repayment mortgage, interest only loan, or a combination of both. Remortgaging options are also offered to expats, along with buy to let schemes. There are some restrictions and criteria to meet depending on the lender. Some financial institutions, for example, require that applicants show proof that they plan to return within a 2-year period. Other lenders accept applications from existing customers only. There are benefits such as no early repayment penalties, attractive interest rates, and others.
Mix and Match Loans
This is a type of mortgage that combines fixed and tracker interest rates. It is a flexible solution in that this product offers protection from interest rate fluctuations. The good thing about tracker interest rates is that when rates drop the monthly payments become more affordable. The fact that the loan also comes with a fixed interest component means that borrowers know how much they will pay during the fixed rate term. Financial institutions that feature this product offer partial protection.