Which Mortgage Type is the Best for You?

February 24, 2021
Kourtney Manley

Obtaining a mortgage is an important process for those looking to purchase their dream homes. Because there are different mortgage types, it is important to understand each type of mortgage to determine which is best for your particular situation. To make this process easier for the many going through it, I have compiled a list of three different types of mortgages, and I will give information on some of the specifics of each.

Annuity Mortgage

 This type of mortgage is the most common in Ireland. With an annuity mortgage, after the length of the mortgage is determined, both parties agree on payment each month that will cover the entire loan by the end of the term. This payment contains two parts, payment of the loan and payment for the interest of the loan. During the beginning, the payments will be mostly focused on interest, but this will shift to focus on the capital loan as you get closer to the end of term date.

Interest-only Mortgage

This loan is generally taken on by most buy-to-let purchasers. If you don’t know what that means, simply put, it is when buyers purchase homes not to live in, but as an investment in the property. With this type of loan, you don’t pay off the capital balance and you only pay the interest payments, as you can tell from its name. You can pay off the capital balance in two ways. One is selling the property and hoping that the amount you get is enough to pay off the loan. There is no guarantee that the property balance will be enough to pay the loan, though. The other way to pay the capital loan is by taking accepting one of the two acceptable policies for building funds to pay the loan. The first is the pension policy in which you pay off your mortgage when you get your personal pension policy. Until that day comes though, you pay monthly interest on the original amount borrowed and payments into your pension policy. With the other policy, the endowment policy, you pay interest on the original loan, but you also pay into an investment account monthly that can be used to pay off the loan at its end.

Deferred start mortgage

 With this type of loan, borrowed are allowed a period in which they don’t have to make payments on their mortgage for a specific period of time set by the lender. You will be charged interest for this period and it will be added to the original loan amount. It will increase the amount of the loan but allows for a period in which finances can be focused on other things.

Written by Kourtney Manley, Business Analyst at OnlineApplication

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