Author: ksanjitha | Total views: 46 Comments: 0
Word Count: 693 Date: Tue, 10 Feb 2009 8:32 AM

What You Need To Know About Best Mortgages

If you do not have much experience with mortgages, then it would benefit you to educate yourself before deciding whether or not to refinance a current mortgage or to buy a new home. Educating yourself on mortgages in the country you reside can benefit you when it comes to finding the right mortgage terms for your individual situation. First, a clear understanding of the term mortgage is necessary.

A mortgage is a security for the loan that the lender makes to the borrower. In other words, a mortgage is the transfer of an interest in a property, a house or a piece of real estate to a lender as a security for a debt for a loan of money.

While a mortgage in itself is not a debt, it is the lenders security for a debt. It is a transfer of an interest in land or the equivalent from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words,

The lender will hold the title of the property until after the full amount of the loan is paid for plus interest. If by any chance, he cannot pay for the loan, the bank will have to foreclose the property and resell it to others. Depending on the terms of the loan, repayment can last until a couple of years. Two of the most common mortgages in the country are the fixed-rate mortgage and the adjustable-rate mortgage.

Fixed-rate mortgage has an interest rate that stays the same all throughout the life of the loan. If for example the loan is termed for 15 years, then the interest rate will stay fixed regardless of the increase or decrease of the market rates. With adjustable-rate-mortgage, the interest rate can change at the end of the pre-determined intervals. For instance, if the agreement says interest change in periods of six months, then the rate will assume the market rates after the six months period.

The important types of mortgages include the endowment mortgages, interest only mortgages, investment backed mortgages, pension mortgage, and repayment mortgage. The first three are interest only mortgages. Endowment mortgage involves repayment of capital using an endowment policy at the end of the mortgages term. For the interest only mortgage, the capital part of the loan is not repaid until the end of the mortgage term. The investment backed mortgage uses a PEP, ISA or some other investment plan to repay the capital at the end of the mortgages term.

A pension mortgage is repaid at retirement using a personal pension schemes tax-free cash lump sum, while the repayment mortgage is a method for mortgage repayment which involves paying both the interest and the capital.

Various types of interest rates include capped rates, discount rates, fixed rates, standard variable rates, tracker rate and variable rates. A Capped rate is similar to a fixed rate, as there is a cap which prevents the interest rate from rising, however the rate can vary as long as it stays below the cap. Some capped rates also have collars, which impose a minimum rate as well as a maximum rate. Discount rates exist when there is a significant reduction of the standard variable rate for a set period of time which generally ranges from one to five years.

A fixed rate is a rate which remains constant for a set period of time, which is typically two, three, four, five or ten years. The longer-term fixed rates such as five and ten year are generally more expensive and less popular than the shorter term fixed rate loans. Standard variable rate is the default variable rate which is offered to every mortgage borrower. Tracker Rate is a variable mortgage rate which is linked to a public interest rate based on a predetermined margin. This rate is commonly linked to the LIBOR for most borrowers, while variable rate is a rate which varies solely based on the discretion of the lender.

About the Author

http://www.financesupermarket.info/ is a great resource for self certification mortgages related articles. Author recommends http://www.financesupermarket.info/100-buy-to-let-mortgage/ for best mortgages

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