| Untagged | 28 Jan 2010 2:40 PM |
| Mortgage – an end to your credit woes by Michelle Kour | |
Mortgage is a legal mechanism that helps the borrower with a loan from a lender who agrees to give him the loan amount against a property that is of equal or more value than the actual loan money.
Like the bank there are various types of Mortgage loans available in the market. Though some of the Mortgage loans are exclusively for the first time buyers many lenders agree to offer the borrower the same deal the second time due to various personal reasons. Some of the types of Mortgage loans are:Fixed Rate MortgagesFixed Rate Mortgages are for those buyers who in advance would want to know the average monthly outgoings considering the rate of interest and the time period the lender agreed on for the loan money. The short term fixed rates would offer you a more attractive rate of interest as opposed to the longer one. The longer the period taken by the buyer to pay back the loan higher will be the loan amount that the buyer ends up paying including the principle amount and the interest accumulated through the years. If the buyer decides to go with this loan type then he will have to pay an early redemption penalty.Discounted MortgagesThe buyers are accounted for a discount in the lender’s Standard Variable Rate (SVR) for a specific period. Generally a discount offered by any lender would be 2 percent less than their actual Standard Variable Rate. The rate of interest keeps changing and after the discounted period is over the borrower will return to the current market rate. If the loan amount is not too much the early redemption penalty charges during the discounted period would be high. The buyer needs to carefully look at the period of the discounted rate, early redemption charges, lock in periods and other hidden costs besides the cheapest mortgage rate.Capped rate mortgagesA capped rate mortgage is a blend of the best features of fixed rate and discounted mortgages. With a fall in the rate of interest the buyer also incorporates the changes in the Standard Variation Rate of the lender. Thus the buyers benefit from any fall in the rate of interest whereas they do not have to pay more if the rate rises. These mortgages also have early redemption charges in their terms and conditions. So if you are a first time borrower or if you have a very fluctuating income then the stability offered by the Capped rate mortgage can be very relevant to you as the rate never rises with a rise in the market rates.Cash back mortgagesThis Mortgage type is very useful for first time buyers who have a very restricted budget and those who intend to buy a loan to use as a deposit for their mortgage. The rate of interest is high but the lender would reimburse a certain portion of the loan once the deal is done.
The Australian home loan market has experienced a strong growth in the last few years. As per the Market Intelligence Strategy the market share for the broker has increased to around 30% of the new loans.
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