Mortgage Loans2 min read

If you want to acquire land or property, mortgage loans are the best option. Since these loans involve large sums of money, they’re usually secured. This means they require some collateral. So in case you fail to repay your loan, the lender can recover their money by selling the asset.

There are different types of mortgages based on interest rates, flexibility and fees.

The most common type of mortgage is the fixed interest loan. As the name suggests, you pay a fixed interest rate for a period of 6 months to 5 years. At the end of the agreed term, you can choose to re-fix the loan or move to a floating interest rate. A floating rate, also known as a variable rate, is whereby the interest rates change depending on the market conditions. One of the biggest advantages of these loans is that you can repay your loan early without incurring penalties or extra charges.

Mortgage Loans Repayment Structures

Table Loan

The most common type of repayment structure is the table loan. This structure involves clearing the loan interest first then paying off the principal, the initial amount you borrowed.

Revolving Credit Mortgage

This type of mortgage loan offers you flexibility. The lender converts your mortgage into a revolving credit account. This allows you to repay and redraw funds up to your credit limit at any time. What’s more, the lender only charges interest on your account balance and not your revolving credit limit.

If you struggle with budgeting, this might not be the best option for you. But, if you have a fluctuating income, you may consider this option.

Offset Mortgage Loans

Offset mortgage involves linking different accounts to your main mortgage account. The amount in current and savings accounts are used to offset your mortgage loan on which you pay interest. Linking many different savings accounts to your mortgage account could lead to paying a lot less interest.

The main advantage of these loans is that since money is continuously deducted from your account(s), you’ll end up paying less interest over time because the interest rates are calculated daily.

Other repayment options include;

  • Reducing loan allows you to pay a fixed amount of principle to reduce interest for each repayment.
  •  Interest-only loan – lets you pay interest only for some time, then you can later switch to other repayment options.