Making Sense Of Different Mortgages
Author: Ajeet Khurana

If I asked you to describe what a "mortgage" was to me, what
would be the first thing that came to your mind be? 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 mortgage loans out there. So what one person
describes as "their mortgage" can be totally different from
someone else's description.

What's the best way of summing up the key differences in the
mortgage loans out there? 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 mortgage variety, you stand to lose a lot more as you have
to secure it against something.

Like a regular loan, though, there are the joys of working out
what sort of mortgage you need to look forward to. 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.

The interest rates vary, and you can get a "fixed rate"
mortgage. 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 afford the repayments. Alternatively you
could try an "adjustable rate" mortgage (which has the interest
rate change over time). There are also combinations of both. 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 mortgage 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 mortgage loan such
as "lifetime mortgages" (sometimes called "equity release")
don't have to be paid back until you die. In short, you're
basically selling your house and living in it until you pass
away, at which point the house effectively becomes property of
the creditor.

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
mortgage to someone. It's far trickier than it sounds if they
have a lot of preconceptions about all mortgages being the same
type.


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