Choosing the right mortgage

Choosing the right mortgage can be an arduous process. Some of the mortgage jargon like fixed rates, variable rates, repayment plan options and deposit percentage can make your head spin. Before you reach the end of your tether, look at these expert tips on choosing the right mortgage while keeping your sanity and dreams intact!

30 Year Fixed RateThis mortgage is the most common amongst borrowers. The payment is the same over a 30 year period. The repayment method is where you pay less on the interest and more on the principal with time. This increases the ownership of your home but reduces the tax amount you can deduct under the scheme. As your potential earnings grow and inflation eases, the burden of repayment will seem smaller. If you take as many as 30 years to settle your mortgage, the payments will only become easier. The only disadvantage to the 30 Year Fixed Rate is that you won’t be able to put down too much towards the house.

15 Year Fixed Rate
This mortgage plan is similar to the 30 year plan, but with quicker repayments and faster ownership of your home. The interest rate is lower than that of the 30 year plan, which means that you can save a great deal in the 15 year period.Convertible Mortgage Loans
There is a conversion privilege to this loan. You can begin with a fixed rate loan which allows you to convert before a specific time. The privilege also lets you start the loan off at a low variable rate and when the fixed rates drop, you can lock the loan in.

Balloon Mortgage LoansThese are short term fixed loans offering terms of 3, 5 or 7 years. The monthly payments are fixed on the balloon loans, where the borrower will pay a lump sum at the end of the term. The advantage of balloon loans is that the interest rate is lower than the 30 year or 15 year plans, which results in lower monthly payments. There is a disadvantage to this type of scheme. At the end of the plan you will have to either use your savings or refinance the lump sum to settle the balloon mortgage. Borrowers can opt for refinancing and convert the balloon period to a fixed rate loan. The new interest rate is the current rate of the time at conversion. Borrowers will have to pay a minimal processing fee to convert their loans.

1/1 Interest Only LoansThis is an interest only loan where the borrower has to initially pay the interest. Thereafter, the borrower will see the payments rise. Many people took out these loans hoping that the housing market will recover and got into big trouble.

Option LoanAn Option Loan is a type of ARM (Adjustable Rate Mortgage). It allows for greater payment flexibility, generally with lower interest payments for a set period of time. After that time period, however, the rate gets readjusted as per the terms and conditions of the loan. This can be very dangerous for those who don’t necessarily understand the contract fully. The other danger with many option loan plans is that the borrower spends most of their time simply repaying the interest on the loan and not the loan itself. Option loans were once quite popular with people playing the property market, since it allowed them to buy properties with an initial low interest payment rate before selling them on again. Since the collapse of the housing marketing, however, such practices are not so common and option loan mortgages are not as popular as they once were.