You might be familiar with the different types of mortgages that are provided in the market these days. Because of the need for many individuals to have an excellent standard of living and the declining economic conditions, mortgages have become quite essential for our everyday lives. One such mortgage includes the annuity mortgage.
This is also known as repayment mortgage, and even though you might not know, this is actually the most common type of borrowing plan for many individuals. The lender will work out the amount that has to be paid every month so that the mortgage can be cleared at the end of the period that has been fixed. The monthly repayment will include part of the capital or the principal that was borrowed along with the monthly interest payment on the loan.
You should know that when it comes to annuity mortgage, the first few payments will be devoted to paying off the interest on the borrowed amount. However, once the mortgage reduces, then the interest component of the principal amount goes down, which means that the later payments would be devoted towards repayment of the loan.
There are different options for you when it comes to annuity mortgage. You have the option for choosing a variable rate for each month or you might also end up choosing a fixed rate. The fixed rate will allow you to make a proper budget beforehand. However, variable rate will ensure that if you run into some money for one month, for example through commission, then you can pay off a large chunk immediately.
As you repay the mortgage, the debt decreases and therefore, the amount of interest that you are paying every month tends to decrease over time. However, the net housing costs would still increase for you because only the interest on the mortgage can be deducted for tax purposes. However, if compared to the other kind of mortgage, such as linear mortgage where part of principal is paid every month along with the interest payments, you would have lower interest payments in the initial months. Therefore, if you have just started off with your job, you might choose annuity mortgage so that you can pay lesser amounts initially and eventually, when the time for your salary appraisal comes along, you would find that the money would increase. Therefore, this is an excellent option for many individuals and it is no wonder that it is so popular and common.
One of the greatest advantages is of course that you are able to get the money without having to pay taxes on it, which is another reason that accounts for the popularity of the annuity mortgage. However, taxes have to be paid if you do not pay the money according to the terms and conditions of the loan. Therefore, there are some technicalities involved as far as mortgages are concerned, which is why you should make sure that you do your research well. Try to get the best deal by researching into numerous companies. However, there is no doubt that there is a lot of convenience with annuity mortgage.