Main Types Of Mortgages
Table (Interest and Principal) Mortgage
A table mortgage is a loan where you spread your repayments evenly over the term of the loan, commonly up to 25 ir 30 years. This means that at the beginning of the mortgage you are paying back mostly interest and only a small amount of principal. As you decrease the amount of principal, the interest also decreases, which allows a greater proportion of your payment to go towards the principal. These loans can oten make it a lot easier to budget.
Flat (Interest Only) Mortgage
A flat or interest only mortgage is a loan where you pay only the interest component of the loan throughout the term. At the end of the term you pay back the principal as a single lump sum. Thease mortgages tend to be short term and the interest rate charged is generally higher. This type of loan allows you to keep you r repayment amount to a minimum until more funds become available to repay your loan.
Straight Line (Reducing Balance) Mortgage
A straight line mortgage is where the amount of the principal you pay stays the same throughout the term of the mortgage, which means as the mortgage period progresses the interest amount reduces. With these types of loans the initial payments ten to be much highter thn other mortgages, but the repayment amounts reduce quicker over the term of your loan.
Revolving Credit
A revolving credit mortgage is like a big overdraft, secured against your property, in that you can draw on it and pay it back as you want. To use a revolving credit facility successfully all your income should go into the account and you only withdraw what you need. Interest is calculated daily on this mortgage, so the longer you leave the moneh in there the less interest you pay. These types of mortgages often require a lot of self control.
Collateral or Blanket Mortgage
The Bank has one mortgage over several properties. This makes it easier to get finance from that bank which is a definite advantage when you are in a hurry, e.g. at an auction. It also allows the equity in one property to serve as the deposit for the next investment property, e.g. 20 % LVR of property number one will serve as a deposit for property number two which will only need to be mortgaged at 80% LVR. the disadvantage is that a collateral mortgage gives one bank a lot of control.
