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What Type of Mortgage Do I Need?
Most mortgage offers are strongly associated with loans secured on real estate rather than other property (such as ships) and in some cases only land may be in mortgage. Arranging a mortgage is seen as the standard method by which individuals or businesses can purchase residential or commercial real estate without the need to pay the full value immediately.
The two main ways to repay your mortgage are ‘repayment’ and ‘interest only’ mortgage. With a repayment mortgage you make monthly repayments for an agreed period (the ‘term’) until you’ve paid back the loan and the interest.
With an interest only mortgage you make monthly repayments for an agreed period but these will only cover the interest on your mortgage. You’ll normally also have to pay into another savings or investment plan that’ll hopefully pay off the loan at the end of the term.
The original, as they say, is the Capital and Interest repayment scheme. Most mortgages are now set up on this basis. Payments are calculated so that whole loan is repaid at the end of the agreed loan term. Each payment consists of a combination of interest and capital repayment. In the early years of the loan the interest element forms a major part of the payments and as a result the borrowing reduces gradually. However as time goes by the proportion of capital repaid increases and the loan will be repaid at the end of the term. This is on the proviso that all payments are made to the lender on time and as they fall due.
2. Interest Only (or Dormant)
An interest only mortgage is one where the interest only part of the mortgage loan is repaid throughout the mortgage term. The capital amount is not reduced and will therefore be outstanding at the end of the mortgage term. What this means is that the interest is charged on the whole balance for the life of the loan rather than on the reducing balance of a repayment mortgage. It is the responsibility of the borrower to ensure that when repayment is due they have sufficient funds to repay the borrowing. Unless you have the means or will have the means when the time is due to repay the loan you will need to set up some form of investment product to build up sufficient funds to cover the capital amount borrowed. Failure to maintain funds to repay the loan may result in the loss of the home at the time repayment is due.
About the Author: Rich Sunset is an active mortgage professional in the New York Mortgage Business and has provided just the right loan to the right customer for the perfect fit.