Mortgage Types
There are several types of mortgages available to homebuyers. Some of these mortgage types include: open and closed mortgages, variable rate mortgages and fixed mortgages. A person can take out a conventional or a high ratio mortgage. Conventional mortgages are for 75% or less of the value of the home. The remaining amount will be covered by a down payment. High Ratio mortgages require less than 25% down. The less of a down payment you make, the higher the interest rates will be as compared to Conventional Mortgages.
Two other terms that are associated with mortgages are open and closed mortgages.
When you have an open mortgage, you can pay off all or part of the mortgage at any time. This type of mortgage normally has terms of six months to one year. There will not be any penalties for paying early. Open mortgages generally have interest rates higher than closed mortgages.
Closed mortgages get their name from a time when the mortgages really were closed. Years ago you could not pay off the balance early unless you sold your home and you could not pay any additional amount on your mortgage. Closed mortgages are no longer as rigid, but the term has remained. These days it is possible to pay off your mortgage early. Major lending institutions offer prepayment options. Using these options, you can pay off your mortgage sooner. Many regular closed mortgages will also allow you to pay off the balance or a part of the balance before the term ends. However, you will usually be charged a penalty for doing so.
The most popular type of mortgage appears to be the fixed rate mortgage. You can lock in your interest rate that you will pay. These mortgages can be taken out for various terms usually up to 25 years. The interest rates for fixed rate mortgages are generally a little lower than those for open mortgages.
With an open variable rate mortgage, you can get good interest rates, fixed payments and the ability to lock in a fixed rate at any time. If you take out a five-year open Variable Interest Rate Mortgage, you can increase your payments and pay off all or part of your mortgage at any time. You can make lump sum payments anytime you want. There are also closed Variable Interest Rate mortgages.
An alternative to a traditional mortgage, is a home equity line of credit. You can determine your own monthly payments. With a home equity line of credit, you will be able to access a percentage of the appraised value or purchase price of your home minus any outstanding mortgage charges. As the balance of your mortgage decreases, your line of credit will increase.
There are many mortgage options available for those buying a home. Most lenders offer several mortgage products for each main type of mortgage. A mortgage specialist can help you to determine the options that are best for you.