Mortgage

Mortgage Making Sense of Different Mortgages

 Many people come up with varying answers to this straightforward question: How would you describe a mortgage? If you ask two people that question, you could quite happily end up with two different answers, simply because there are actually a good number of types of loans out there. So what one person describes as "their mortgage" can be totally different from someone else's description.

Given the wide variety of loans, I wonder if there is any definite way of classification. The important word, really, is "loan". A lot of people just casually drop the word in everyday use, but that's effectively what it is. The "mortgage" part means, for the context we're looking at, that the money they loan to you has a pretty large catch attached to it: if you don't pay up, they get your house. It's a pretty sweeping statement, but with the variety, you stand to lose a lot more as you have to secure it against something. Now, if you are planning to go look for that mortgage, there is a lot of work involved. Make sure you do all your groundwork first. The sorts available vary from legal system to legal system (so basically country to country), but in the long run they all boil down to you having to pay back the amount you borrowed over a long period of time with some interest. In my opinion, if you are looking for stability, the fixed rate option is the one for you. This means that you don't have to worry about the interest changing from month to month. So you won't suddenly find yourself unable to

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afford the repayments. Alternatively you could try an "adjustable rate" (which has the interest rate change over time). The two kinds of rates can be combined in some mortgages. The actual rate itself can vary, but that's generally just based on what creditor you go with (which in turn can be affected by your credit history). One aspect that can definitely change between types is how and when you're expected to repay it. The "capital", or amount you were initially given, clearly has to be paid back to the creditor at some point, but some types of loan such as "lifetime mortgages" (sometimes called "equity release") don't have to be paid back until you die. In this case what happens is that you are basically selling your house and continuing to live in it till your death. Thereafter, the creditor takes it over. There's often an age limit so only retired home owners can take out the loan. And it's unlikely that you'll end up with the same value of loan as you would if you actually did sell your house. But it does have the added benefit of giving retired home owners the chance to live in their own home in relative comfort for the rest of their lives.

 So: interest rates and variability, how and when it has to be repaid (not to mention the legal aspects of the whole loan) are all ways in which mortgages can vary. Try explaining your to someone. Every differs a great deal. Hence, no matter what you think, explaining the concept will be fairly tough.

By: AJEET KHURANA http://www.nationsfinance.co.uk/mortgages/,