Pick a mortgage that suits your budget and repayment capacity

A mortgage is usually taken for a longer period due to the high amount borrowed and the bulky monthly repayments. If you are a salaried person, you may prefer to go for a mortgage with longer fixed monthly installments whereas if you are a small business owner and can not predict your income every month then you may be interested in a mortgage that offers flexible repayments. So, the need of every individual is different and so the mortgages are also divided into different categories. We can broadly divide the mortgage into five types namely the Fixed Rate Mortgages, Capped Rate Mortgage, Discounted Rate Mortgage, Variable Rate Mortgage and Cash Back Mortgage.

Fixed Rate Mortgages:

In this type, the monthly rate of interest remains the same for a fixed period. The period can be anything between 1 to 30 years. In 15 or 30years fixed rate mortgages, we should pay off the loan at the end of the period, and if we fail to pay, then the rate automatically changes to variable rates. These are called as Adjustable Rate Mortgages. These ARMS plan are also available for 1, 3, 5 and 7years. In the fixed rate mortgage, the rate of interest remains the same for every month till the fixed rate period even when the mortgage rates rise. The drawback about these types of loans is you should pay only the fixed rate of interest even when the interest rates fall.

Capped rate mortgages:

In capped rate mortgage, the payments can go up or down. But the increase in rates is restricted by cap or upper limit for a fixed period. This type of mortgage assures that the rate will not go higher than the stated cap. It helps you to stay in your budget by protecting you from high rate of interest. But when compared to fixed rate mortgage, capped rate mortgage is too high.

Discounted rate mortgage:

These types of mortgages allow you to pay very less rate of interest in the early period of the loan. The amount is very low than the variable rates during the initial period. After the discount period the rate will increase sharply and you have to repay more towards monthly installments.

Variable rate mortgages:

In this type of mortgage, the amount will change according to certain market factors. If the market indicates low interest rates, then you can pay lower rate of interest. The main drawback is that if the market indicates higher interest rates, then your repayment will also rise. However when compared to fixed rate mortgage, the rate of interest is lower in variable rate mortgage.

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