The mortgage loan is a banking product that allows the person who has requested it to receive a certain amount of money from a lender with the commitment to return that amount plus related interest in installments. Mortgage loans are approved primarily to purchase houses, lots, rural properties, or other urban buildings such as commercial premises.
Thus, the most common is purchasing a house since they concentrate on 60. % of these credits, according to data from the National Institute of Statistics. In total, there were around 20,747 home mortgages in 2016, which meant an increase of 6.9% compared to 2015.
Given that, as we have seen, mortgage loans are prevalent when buying a house, below are a few types of mortgages along with how they work.
Mortgage Loans According to the Interest Rate
There are three types of bank loans according to the interest rate.
Fixed: In this case, the interest rate does not change during the entire term of the mortgage return. Consider studying this option before accepting any long-term agreements because it usually has high costs to compensate for the interest rate risk.
Variable: Here, the interest varies at some time of the mortgage credit. It is the most common in the country, and, in most cases, it varies between the first six months and the first year and is more significant than in the second period. The rest of the bank loan is usually at a fixed interest rate.
Mixed: On the contrary, in the mixed mortgage loan, the interest remains fixed during the initial period of more than one year, which is then variable.
Mortgages According to the Type of Quota
The fee is the amount of money that is paid monthly with the loan. Thus, mortgages can also be in categories according to the type of fee.
Constant or fixed installment: this mortgage payment system is the most common in our country. It comprises one part of amortization capital and another part of interest. You can characterize the first year as paying more interest than the amortized part, but this changes over time.
Armored fee: Always keep the same payment amount, no matter what happens with interest. The only thing is that if the interest increases or decreases, the number of terms to pay the mortgage will increase or decrease as well, but always with the same amount.
Final fee: Consists of saving a part of the capital, which is around thirty percent, to pay it in the last term; the total quota ends up being smaller, but it has more interest because they are applied more to the final quota. With that, a person must consider that we must save to have that amount at the end of the deadlines.
Increasing share: Like its name, this allowance grows year after year by 1 or 2%, depending on the fluctuation of interest. The first installments will be pretty low, but it will notice the amount as the amount increases.
Only interests: This type is the least usual and the most peculiar. It is about that, in terms of payment, only interest is required. In this way, when they finish the payments, it is only necessary to deliver the loan’s total amount or sell the house to face the debt.
Other factors to consider before hiring mortgage loans.
Once a person gets to know the types of mortgages that exist, a person should also analyze other factors before hiring.
The Amount of the Loan
It is essential to check before applying for a loan that it will pay the contracted interest. For this, a person can ask the bank to simulate the expense with different interest rate increases.
Similarly, the credit institution can also tell how much money they can pay and how much financing they will receive. The usual thing is that banks give 80% of the amount of the house, but depending on other circumstances, as if it is a first home or a first mortgage or income, a person can give either more or less.
Mortgage Loans
The coin: Although it is usual to contract a loan in the country’s official currency, you can also do it in different currencies. It usually means a reduction of interest. However, a person has to take into account currency variations.
The repayment term: Mortgages are usually valid for about 40 or 50 years, given the high amount of money requested from the bank. As a result, the more installments a person has, the longer it will take to pay, but the smaller the monthly installments.
However, if the loan is contracted at variable interest or in foreign currency, the longer it is, the more risk of rising interest rates. A person ends up paying extra money. First of all, a person needs to understand that it is essential to carefully analyze the loan that a person will request and the repercussions that it will have on their future as it’s almost a long-term investment. Hence, it has to be appropriate regarding a person’s situation.
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