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The mortgage industry is very competitive. There are so many different products available and coming online that it makes sense for a consumer to shop around before making any decisions. The most popular general mortgage products available are fixed rate mortgages and interest only mortgages. This article will explain how the different mortgages work and some of the advantages and disadvantages of each type of loan.
Fixed rate mortgages are the traditional mortgages most people are familiar with. The rate is fixed as per the tenure of the loan so that the monthly payment is predictable. This gives a lot of security to the owner of the house. They can fit the mortgage repayments into their monthly budget and then forget about changes in the economy, current account deficits, inflation and all the other stuff that can be factored into the monthly consideration of shifting base interest rates. Is. The base interest rates are determined by the Reserve Bank. They are the rate on which mortgage companies and banks base their lending rates with a few percentage points.
The disadvantage of mortgage rate quotes for fixed rate mortgages is that the criteria to qualify for this type of mortgage are stricter. You will need more income and probably around 20-25% lump sum amount as deposit. Generally, because the rate is fixed it will be higher than any other type of mortgage rate and there will be no payment flexibility.
In contrast, an interest-only loan is a mortgage where the homeowner can choose to pay only interest on the loan instead of principal and interest. Some types of mortgages may have an interest-only period for the term of the loan or for the first few years of the loan and then revert to principal and interest repayments. Both adjustable and fixed rates are available for this loan type, and mortgage rate quotes can be obtained for interest-only loans.
The main advantage of a mortgage rate quote for an interest-only mortgage is that it provides greater purchasing power, flexibility, and less qualified income. An interest only loan mortgage rate quote has the disadvantage of a potential payment shock following pre-defined interest only payments. Negative amortization and short-term protection can also occur.
The purpose of interest only mortgage rate quotes is to make it easier to afford a mortgage. These target young people, first home owners or the expensive housing market. Their aim is to attract business to the lenders because of this. It has to be remembered that, even though the monthly repayment is reduced, the capital is not being repaid. This means that if there is no appreciation in the value of the home then no equity is being created on the home. Unless there is a significant increase in the price of the home or significant inflation during the term of the mortgage that can reduce the value of the principal loan, you will have to come up with this principal amount at the end of the term.
Fixed-rate mortgages are better over the long term, but are harder to get into. These are more traditional options, with less inherent risk. Many homeowners will only consider a fixed interest mortgage rate quote when shopping for a lender because of the security they need when providing a home for a family.
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