Kinds Of Mortgages - Know The One Which Is Right For You
Open mortgages are perfect for people who want to have the ability to make large payments on their mortgage or be able to pay off their whole mortgage without incurring penalties. These kinds of mortgages offer maximum flexibility. The landowners who pick this particular alternative are willing to accept some interest rate variation in a trade off for the flexibility of paying off the whole mortgage prior to the term being complete.
Nearly all mortgages would only allow a homeowner to make lump sum payment once a year without penalties. Normally, the borrower would just be allowed to make payments of 20%. In the business, these are known as "privilege payments". That payment is directly applied to paying down the principal of the borrowed amount. Hence, to be able to make extra payments on your mortgage, you do not necessarily have to pick the open mortgage alternative with its interest rates that are higher.
A closed mortgage on the other hand is a commitment over a pre-determined period of time which has a pre-set interest rate. Normally a buyer who selects a closed mortgage must pay a penalty to the lender if the loan is paid in full before the end of the closed term.
The interest rate on a closed mortgage would not change during the course of the mortgage deal. Additionally, in this kind of mortgage, the duration of the term will not change; therefore, payment amounts are predictable. Also predictable is the principal amount left owing at the end of the term.
Usually, closed mortgages have lower interest rates than open mortgages. Nearly all closed mortgages will let the homeowner pay once a year as much as 20 percent of the whole mortgage with no penalty. This payment is directly applied toward paying down the principal of the amount owed.
A convertible mortgage is the kind where an agreement is made at the beginning of a term that allows homeowners to be able to change the kind of mortgage they hold during its term. For example, if a landowner wants to start with an open mortgage and then lock into a closed mortgage, then a convertible mortgage is the proper alternative. This way they are offered the lower rates of an open mortgage and still maintain the choice of converting to a closed term.
The reverse mortgage allows older landowners to change their home equity into monthly cash payments, normally used for living expenses. With this type of mortgage, a homeowner's equity is gradually drawn down by a series of monthly payments from the lender to the borrower or the homeowner. Upon the homeowner's death or at the end of the loan period, the loan balance is due. Usually, this amount is settled by the heirs who often sell the property to be able to meet the outstanding obligation.
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