Mortgages can be scary for first time buyers. It may help to understand the different types of mortgages when you apply for a mortgage. Here are the 8 most common types of mortgages:
- Repayment Mortgage – This is the most typical mortgage. You pay back the principle you borrowed along with the interest applied in fixed (typically monthly) installments.
- Fixed Rate Mortgage – This means the interest rate that the bank gives you is fixed for a specified period of time. It is a safe mortgage because the monthly payments do not change over time.
- Standard Variable Rate (SVR) Mortgage – The rate is changed by the banks typically to reflect how the economy is doing. This rate typically follows the LIBOR or Federal Funds Rate set by the central banks.
- Interest-Only Mortgage – This mortgage pays off the interest before principle. After the interest is paid off, the borrower starts to pay off the principle amount he or she borrowed.
- Federal Housing Administration (FHA) Loan – These loans protect people who may not be able to pay back their monthly payments with insurance built into the mortgage. Down payments are typically smaller.
- Balloon Loan – Similar to an Interest-Only Loan, this loan requires one to pay back interest before principle over a specified period of time. The different part of this loan is that the principle amount is due once the interest is paid off.
- Combination Loan – Two separate mortgages are given from the lender to the borrower. Typically the first loan is used to construct the house they plan to build while the second loan is used for the actual mortgage. This is not always the case. This mortgage is appealing for buyers when they can’t come up with a 20% down payment and do not want to pay mortgage insurance on the loan they are borrowing.
- Offset Mortgages – This mortgage ties your savings account into the mortgage so you can pay less interest. For example, picture that you have 5000 Euro in your savings account and your mortgage costs 25000 Euro. 25000 Euro minus 5000 Euro = 20000 Euro. Now you only have to pay interest on 20000 Euro instead of 25000 Euro.
If you are struggling to figure out what mortgage is best for you, we can help you at Irish Mortgage Brokers.