Variable
Rate - This is the standard mortgage, where your repayments
are directly affected by interest rates. You will pay less money
when interest rates are low, however your monthly repayments
will increase, when rates rise.
Fixed
Rate - Interest rates are fixed for a period of time. Once
this period of time has finished the rates become variable.
These are often chosen by first time buyers, as they provide
a higher level of security and stability for the first couple
of years of home ownership, however mortgage lenders will always
charge more for the fixed rate and you will not be able to take
advantage of significant interest rate drops.
Capped
Rate - Your monthly repayments will not rise above a certain
level for a fixed period of time, even if interest rates rise.
However your repayments will go down when interest rates fall.
It is most likely that your bank will charge you more for this
and you should ensure you read the small print as you may incur
penalties if you decide to break the agreement.
Discounted
Rate - For a limited period, your mortgage will be offered
at a discount. This is often a sales promotion employed by mortgage
lenders to win more customers. Be careful and ensure you read
the small print as you may find you are tied into the agreement
for a number of years and when the discounted period ends, you
could be paying a significantly higher rate of interest, than
a standard variable rate. Again there may be financial penalties
for breaking the agreement.
Repayment
Methods
There are
three main ways that mortgages can be repaid:
Repayment
Mortgages - This is the most common,
the loan is repaid on a monthly basis, along with the interest.
Interest
Only Mortgage - Only the interest
is repaid each month. This makes for significantly lower monthly
repayments, but remember, you will need to repay the amount
borrowed in full at the end of the mortgage term, so you will
need to make arrangements to ensure you can repay the loan.
Investment
Backed Mortgage - The loan is repaid
from the proceeds of an investment.
Applying
For A Mortgage
When you
go to apply for a mortgage you will be asked a range of questions
about your financial circumstances and should be prepared to
answer these.
You may
also be asked to bring a number of items with you, including:
