A mortgage is a type of secured loan where the borrower puts something as collateral when asking for the loan. The collateral might be the house, the car, or any high value property of the borrower depending on the total sum of the loan. There are many kinds of mortgages, but the most popular of them is the mortgage where the borrower puts his house as collateral. Let us talk about these types of mortgage.

The two basic types are repayment and interest mortgages. The first one is also known as capital and interest mortgage. When you ask for this type, your monthly payments will consist of a part of the capital debt and interest. You should know that your monthly payments would be a little bit higher than in the other case; but when the period is over, you have repaid all your debt.

In case of the interest mortgages you pay only the interest every month. This has a positive and a negative side: you will pay small amounts of money each month; but when the period from the contract is over, you had repaid only the interest of the mortgage and you will still owe the sum you had borrowed in the beginning. If you cannot repay the capital debt, the lender may repossess your home, or what property you had placed as collateral. Although these are the two basic types of mortgages, you can mix the two of them.

The first combined type is the standard variable rate mortgage. In this case, your monthly payments can change according to the main bank of your country’s changes. If the main bank raises the rate, your monthly payments will grow a little, but when the main bank lowers the rate, your monthly payments will get a little smaller. The important thing here is that the lender depends in a way on the main bank, and you will feel every change. This is a very good reason for you not to contract such a mortgage. Another type is capped rate mortgage. This is the best deal when combining the two basic mortgages. You agree to have a limit on the maximum amount of interest over a period, and if the variable falls, your monthly payments will become smaller.

The third type is discounted variable rates. This is very similar to the interest repayment version, but the lender agrees to give you a discount on their standard variable rate. Although the variable rate might change in time, you will pay less than in the case of interest mortgage. The last combined mortgage type is fix and track mortgages. This one starts with a fixed interest rate for a shorter period, and after the time had passed, the interest rates will follow the country’s main bank’s base lending rate. This last one is also a good mortgage type, but it is somewhat rare, just like the capped rate mortgage.

When you want to contract a mortgage, you should be very careful and discuss all the options with your financial officer, this is the only way you will be able to make the best deal. In addition, you could see that although there are only two main types of mortgages, there are several combinations, which are not equally good for the borrower. You should keep your eyes open and always choose the best option!