Mortgage Loan Types

There are 2 main mortgage loan types and come in two further main variants along with several other different types and descriptions.

Main Home Mortgage Mortgage Loan Types

Repayment Mortgage – This is the norm for most home owners. In addition to the monthly interest charge, an additional amount is paid to reduce the outstanding amount over the life of the loan.

2 Mortgage Varieties
They then fall into several categories and basic descriptions Initially mortgages are split into either fixed rate or variable rate loan.

1. Fixed rate loan

2. Variable Rate mortgage

Variable Rate Sub-categories
Variable Rate loans are then split into further categories. Some of the names vary from lender to lender in an attempt to differentiate themselves but essentially have the same features.

Discounted Rate Mortgage – Has an initial discount period which will be below the banks Standard Variable Rate

Tracker Rate Mortgage – Where a variable rate goes up and down with the base rate there is nothing limiting his movement. It’s at the banks discretion (which makes people nervous). A tracker mortgage is fixed to the base rate or variable rate and therefore the borrower always knows how much their mortgage will change.

Capped Rate Mortgage – This is where the mortgage rate varies but has a ceiling or “Cap” that it can’t go over for a specific period.

Other Mortgage Loan Types

Prime Mortgage Loans – This distinction relates to credit score and credit history and or employment history. An employed person with good history would be classed as “Prime”.

Subprime Mortgage Loans - Somebody with poor payment history or someone who can’t prove their income (often self employed people as true income is rarely reflected in tax returns) would be considered “Subprime”.

Self-certify Mortgage – as above this is a variant on sub-prime lending where the applicant is unable to verify their income. Generally due to working several jobs, being self-employed or earning commission or bonus income that lenders would generally ignore.

Home Equity Refinance Loan Mortgage – This is where “equity” or “capital” is released from the property for other purposes. Often for debt consolidation, home improvement or for Buy to let purchase. Equity is the difference between the value of the property and the debt secured against it. To compare Home Equity Mortgage Loans takes time and is particularly difficult when consolidating debts.

Debt Consolidation Loan - This is used where credit cards or personal loans are at a higher interest rate than the mortgage and all debts are lumped into one mortgage at the lower rate. The advantage being a lower monthly payment as debts are generally spread over a longer period.

Current Account Mortgage also known as an Offset Mortgage and has a variant “Australian Mortgage”. This mortgage has a linked current account or savings account. Any funds in the current account earn zero interest as this balance is offset against the outstanding mortgage and therefore the mortgage balance is lower. Theoretically Less interest.

Home Mortgage – is any debt secured against the value of the property

1st 2nd Loan Mortgage Refinance – Often second charge mortgages are consolidated into the first mortgage to take advantage of lower interest rates and simplify budgeting. A 1st mortgage is the lender that has first access to any money in the event of default where the property is repossessed and sold.

2nd Mortgage Refinance - a second mortgage loan is simply that. A second mortgage secured against the property. There can also be 3rd or 4th mortgages although this is rare. It is called a second mortgage solely because it is listed 2nd on the title and if you defaulted on the mortgage and the property was repossessed and sold, they would have the second access to any money after the 1st mortgage was repaid.

Buy to Let Mortgage – there are several mortgage loan types used for investment properties where the property is rented out to tenants. Most often these are interest only mortgages.

Return to home www.key-mortgage-secrets-revealed.com