Understanding Mortgages

A mortgage can simply be defined as a secured loan advanced by regulated institutions for the purpose of acquiring a home. The loan must be secured by the property to be acquired. Its key features include loan size, interest rate, maturity and the payment method.

The industry key players include banks, credit union and building societies. Conventionally, the size of loan advanced is a reflection the securing property’s value. Hence, with property revaluations, mortgage refinancing can be provided to reflect on the real picture.

Acquiring a property on mortgage requires that the buyer makes a deposit, which is usually a percentage of the value of the property. Hence, considering that most properties are usually highly valued, it logically follows that the deposit also tends to be quite a lot of money.

Notwithstanding, a higher deposit often translates to low rates of interest as there is minimal risk of default on the borrower. Deposits in Australia vary depending on whether the mortgage is with insurance or devoid of insurance.

As previously stated, they are secured loans in which the borrowed money is the capital upon which interest is charged. Basically, they can be classified into interest only, repayment mortgages or a combination of the two.

The former requires that only interest on the loan is repaid with nothing paid on the borrowed amount.  Repayment mortgages demand that both the interest and a portion of the capital monthly.

Finally, the combined is a mixture of the prior two. Consequently, for a beginner, the Australian market offers all the alternatives and it is advisable to consult financial advisors who can appropriately advise on the appropriate product. Brokers have the professionalism required to appropriately advise.

Deciding on the method of repaying the loan is not the end; rather, the buyer must consider the product that may best suit the circumstances. It should be noted that products that appear cheap tend to have quite inflexible and are laden with numerous fees added on the mortgage.

Product selection, therefore, requires thorough comparing of options. In Australia, the commonly available products are the: fixed interest discounted interest rate and the split rate. Commonly, the fixed rate usually applies for up to five years, albeit some mortgages offer prolonged offers, after which the standard variable rate takes effect.

On the other hand, some mortgages allow for the discounting of the rate for a year after which the standard variable rate takes effect. Finally, in the split rate, the loan can be divided into two accounts can either be variable or fixed or interest only or principal and interest. The choice largely depends on economic considerations and convenience in repayment.

Want more? Visit mortgage brokers for more details.