The primary aspect most homebuyers will evaluate in a mortgage is its repayment. After all, you need to be sure that you can handle your repayment schedule to avoid losing your home to foreclosure. There are several types of mortgage repayment plans. The most popular plan is the repayment mortgage. With this option, you will pay a portion of your home loan’s capital, along with its interest, every month.
In the initial years of your loan term, the repayment to your mortgage lender in Utah primarily comprises the loan’s interest. In the final months, you will mostly pay your loan’s capital. This means you will build your equity fast toward the end of your loan’s term. The amount you pay monthly depends on your loan’s capital, interest, and fees.
Here are the common types of repayment mortgages:
Fixed-Rate Loans
With this alternative, you will have a guaranteed rate for a specific timeframe. The standard fixed-rate timeframes are ten, two, and five years. Once the period ends, your loan is changed to a variable rate one. Fixed-rate mortgages offer you certainty on how much you will pay; therefore, you can plan your finances better. However, they might prove expensive with their added solicitors’ and valuation fees, and if you plan to move house after a short period, they are not portable.
Tracker Loans
These are a variant of variable rate loans. Their interest might change any time. The interest rate of your tracker mortgage is determined by a base rate set by the central bank. There is also a floor or collar for this mortgage, which denotes the minimum rate you can pay for the loan regardless of the base rate. Tracker loans allow you to benefit from low prevailing interest rates and most have no prepayment penalty. But they make the planning of your repayments difficult.
Discount Loans
Here, your mortgage’s interest rate for a specific period is a discounted amount of the rate your lender offers for variable rate mortgages. While the rate changes, you will generally pay a lower interest rate than you would in other home loans during the discount period. After this time, the loan automatically becomes a variable rate one. Most discount loans have a floor, and this might limit the benefits you can reap from them.
Offset Loans
These are linked to one or several savings and bank accounts. They allow you to use the cash you save in these accounts to reduce your interest repayments. Therefore, you will pay more of your capital monthly since the interest repayment is reduced and you finish your loan’s repayment fast. Most lenders, however, charge high-interest rates for offset mortgages.
Interest-only home loans only require you to pay their interest monthly at first, and then a lump sum of the capital when you finish the interest repayments. They are usually only used for buy-to-let properties, and it is a challenge for most borrowers to manage the repayments. This makes the above repayment mortgages the most convenient and easiest to control for homebuyers investing in a primary residence.
