The Ultimate Guide to Choosing The Best Mortgage For You
The Ultimate Guide to Choosing The Best Mortgage For You

The Ultimate Guide to Choosing The Best Mortgage For You

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Buying your first home is exciting, but it can be a little daunting. Which mortgage is the best for me? What do I need to know about buying a home? We have the answers to these questions and more in this definitive guide to buying a home. 

We’ll walk you through the home-buying process, help you decide if now is the right time for you to buy a home, and provide you with guidelines on how to get the best mortgage for your needs.

What are the different types of mortgages?

  1. Unsecured 

A mortgage with no collateral is known as an unsecured loan. If you want to buy a home that doesn’t have a ‘first mortgage’ it will usually be an unsecured loan. However, most people borrow against the value of their home to buy their first property. 

  1. Collateralised 

A mortgage that has some form of security with the loan is known as a collateralized loan. When you get a mortgage secured against a specific asset, it can be a house or other asset. A mortgage with no collateral secured against another asset such as a business, is known as an unsecured loan. 

  1. Fixed Rate 

A mortgage that has an agreed rate of interest for the duration of the loan is known as a fixed rate mortgage.

What is a fixed-rate mortgage?

A fixed-rate mortgage is a fixed amount of money you repay, either in monthly instalments or annually, for a set period of time. The term may be 30 years, 40 years or 50 years (depending on the product) and the borrower is free to choose when they will begin repaying the mortgage, up to the end of the mortgage term. 

What is a variable-rate mortgage? A variable-rate mortgage is a mortgage that will change with market interest rates – that means, rates may rise or fall over time. The terms are usually fixed for a set period of time before the rates are changed. 

They may still change over the life of the mortgage. What is an interest-only mortgage?

What is a variable-rate mortgage?

A variable-rate mortgage is a loan whose interest rate is set each month by the lender. For example, say you’re shopping for a $200,000 home and the lender offers you a 10-year mortgage at 4%. The rate adjusts every month, going from 3.75% to 5.5% and back to 4% again. 

You will continue to pay 5.5% interest during the first 5 years of the loan, and after that, your interest rate will switch to the annual benchmark rate of the prime rate (currently 4.29%). A fixed-rate mortgage has the same interest rate throughout the duration of the loan. 

A low-rate mortgage is a fixed-rate mortgage where the interest rate never changes. The fixed-rate mortgage and the variable-rate mortgage are very similar.

What is a joint mortgage?

Joint mortgages are arranged through a reputable lender. Once your loan is approved, you and your partner will contribute a percentage of the purchase price to the purchase price of your home. 

What is a fully drawn down mortgage? 

A fully drawn down mortgage is the most common type of mortgage. When you pay off your mortgage, you can sell the property and start repaying your mortgage debt. But, are these the only mortgage options out there? Not necessarily. 

There are a lot of other mortgages out there. And many of them are more flexible. For example, fixed rate mortgages allow you to keep your payments affordable. 

Let’s take a look at the three main types of mortgage available to you. Fixed rate mortgages These loans come with an interest rate set for the term of the mortgage.

What is a shared mortgage?

A shared mortgage is like a cash-for-valuation or cash-for-loan mortgage. You and your parents co-sign the loan, which gives them ownership of the property and the right to live there. If you don’t pay the mortgage, the entire value of the property is seized by the lender. 

Why would someone need to co-sign a mortgage? 

If you’re a first-time homebuyer or just getting a mortgage for the first time, you can take the mortgage only if your parents cosign. Some lenders only accept this form of mortgage. 

What’s the difference between a first-time homebuyer loan and a shared mortgage? 

A first-time homebuyer loan requires two owners of the house, which you would not be, to agree to a home purchase.

What is a reverse mortgage?

Reverse mortgages are designed to help those who can no longer afford their own home to do so. It is a lifetime mortgage. The person selling their house receives some payment each month until they sell the house or reach the limit of the loan. 

How is this different from a traditional mortgage? 

Traditional mortgages allow you to borrow the down payment and then pay the interest. Reverse mortgages allow you to borrow the amount you need to buy a home but also have some freedom on how to use the money as you want. 

The reverse mortgage payment is less than what you would pay on your first mortgage. The down payment and payments are up to you and your senior’s financial adviser. 

What is a home equity loan?

With a home equity loan, you tap your home equity to fund the down payment, closing costs, upgrades, and furnishings for your home. These loans come with variable interest rates and interest-only periods. 

Home equity lines of credit (HELOC) A HELOC is a similar loan but without the variable interest rates. When a HELOC is used for the down payment, the interest on the loan will be directly applied to the mortgage principal. 

What are mortgage loan options? When you’re looking for a loan to finance your home purchase, you’ll find one of three loan options: Traditional (fixed-rate) mortgage Variable-rate mortgage Equity line of credit (ELOC) Traditional fixed-rate mortgage With a fixed-rate mortgage, you can choose a single-digit interest rate for each month.

Conclusion

Despite making the down payment the most expensive, banks are often quite happy to lend to first-time buyers. If you’ve made a good enough down payment and have enough reserves to pay the lender back, they’ll usually lend the money with relatively few restrictions. 

So don’t hesitate to start researching different types of mortgages and shopping around for the best deal you can get. There’s no point getting a great loan only to find out it’s not practical to buy your home right away. The best mortgage always allows you to make the best possible move in your career right away. 

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