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Interest
Floating-Rate Mortgage - mortgage where the
interest rates rise and fall, so your repayments may go up or down.
You can usually make lump sum payments without any penalties. It is
easier to consolidate debt with higher interest into floating rate
mortgages by borrowing more.
However, floating rates often have higher interest than fixed-rates.
It is hard to forecast future mortgage repayments as they are
inconsistent.
Fixed-Rate Mortgage - mortgage where the
interest rate is set at the beginning of the period and remains
constant for a set term. After the set term then the mortgage goes
on to floating-rate, unless you negotiate another term.
You will always know exactly how much each payment will be, making
budgeting easier. You generally get a lower interest rate than
floating.
However you will usually have to pay penalties for lump sum
payments. If you have a long-term fixed-rate, there is always the
chance that interest could drop over that time.
Capped Rate Mortgage - mortgage where you
pay the floating interest rate, but if it goes above a certain rate
then you only pay that capped rate.
Mixture - you can have a mixture of all the
types of mortgages, for example if you have a $200,000 mortgage you
can put $100,000 on floating and the other $100,000 on fixed.
Repayments
Principal and Interest - the most common
way to repay a loan is make regular payments of the capital and
interest over a set term. It is common for payments to go on for
25-30 years until the property is owned outright.
Interest Only - the common alternative is
interest only payments. This is often the case with investment
properties.
No Interest or Principal - this can be a
helpful way for older people to retire. The home owner receives
regular payments for them to live on, and once they die the property
goes company providing the income. There are age restrictions. It is
also know as a reverse mortgage.
Amortization Mortgage - process of
discharging a mortgage by a set of regular equal or unequal payments
of principal and the interest.
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