Making Sense Of Different Mortgages

If I asked you to describe what a "mortgage" was to me, what would be the first thing that came to your mind be? If you ask two people that question, you could quite happily end up with two different answers, simply because there are actually a good number of types of mortgage loans out there. So what one person describes as "their mortgage" can be totally different from someone else's description.

What's the best way of summing up the key differences in the mortgage loans out there? The important word, really, is "loan". A lot of people just casually drop the word in everyday use, but that's effectively what it is. The "mortgage" part means, for the context we're looking at, that the money they loan to you has a pretty large catch attached to it: if you don't pay up, they get your house. It's a pretty sweeping statement, but with the mortgage variety, you stand to lose a lot more as you have to secure it against something.

Like a regular loan, though, there are the joys of working out what sort of mortgage you need to look forward to. The sorts available vary from legal system to legal system (so basically country to country), but in the long run they all boil down to you having to pay back the amount you borrowed over a long period of time with some interest.

The interest rates vary, and you can get a "fixed rate" mortgage. This means that you don't have to worry about the interest changing from month to month. So you won't suddenly find yourself unable to afford the repayments. Alternatively you could try an "adjustable rate" mortgage (which has the interest rate change over time). There are also combinations of both. The actual rate itself can vary, but that's generally just based on what creditor you go with (which in turn can be affected by your credit history).

One aspect that can definitely change between mortgage types is how and when you're expected to repay it. The "capital", or amount you were initially given, clearly has to be paid back to the creditor at some point, but some types of mortgage loan such as "lifetime mortgages" (sometimes called "equity release") don't have to be paid back until you die. In short, you're basically selling your house and living in it until you pass away, at which point the house effectively becomes property of the creditor.

There's often an age limit so only retired home owners can take out the loan. And it's unlikely that you'll end up with the same value of loan as you would if you actually did sell your house. But it does have the added benefit of giving retired home owners the chance to live in their own home in relative comfort for the rest of their lives.

So: interest rates and variability, how and when it has to be repaid (not to mention the legal aspects of the whole loan) are all ways in which mortgages can vary. Try explaining your mortgage to someone. It's far trickier than it sounds if they have a lot of preconceptions about all mortgages being the same type.

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