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PICKING YOUR MORTGAGE:
• Short-term mortgages offer the advantage of lower interest rates but are for the more confident borrower
• Long-term mortgages present higher interest rates or the price you pay for security and protection from volatile rates. If you are an investor who dislikes risk and does not want to worry about fluctuating interest rates, this may be for you
• Fully open mortgage is the most flexible mortgage available, giving you higher interest rates than closed mortgages, as you have option to pre-pay any amount on principal without being penalized, terms generally six months to one year
• Open mortgages may be misleading as they are only ‘partially’ open, meaning you may not be able to pay off principal balance whenever you wish without pre-determined or unseen penalties
• Fully closed mortgage offer lower interest rates as payments are pre-determined and set by lender, probably the most inflexible and terrible for a borrower as you are not able to adjust mortgage as market interest rates change
• Portable mortgages are increasingly popular as home buyers are becoming more informed and forcing lenders to become more competative. These mortgages may be carried over to new property purchased and as such, do not limit you to only one home
• Variable rate mortgages have their interest rates adjusted continually to reflect changes in economy. Risk is on the borrower and so usually has the ‘open’ option, giving borrower opportunity to pay off whenever they wish
• Fixed rate mortgage incur the same rate on your mortgage until maturity and is ‘closed’. Additional payments onto principal usually incur some sort of penalty
• Convertible mortgages are the most flexible around, giving borrowers the option to switch from short-term mortgage agreements to long-term fixed for example, usually within a specified amount of time (six months)
• Second mortgage are significantly smaller loans than the first mortgage, but gives the lender or mortgagee the right to take your home if you default or fail to pay
• Reverse Mortgages in the simplist form are a conversion of equity on your home into cash without having to pay it back right away, giving you additional funds. This mortgage was created for the older investor as payments to investor are based on life expectancy. In this category you have simple reverse mortgages, reverse annuity mortgages, reverse mortgage lines of credit and shared appreciation reverse mortgages.
• Assumable Mortgages remain with the property when it is sold and transfer to the next owner or borrower. The benefit of this is that costs that are usually incurred with a new mortgage do not apply and the mortgage merely continues its term
Mortgage Types Articles
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