Mortgage Types

Mortgages types can differ in how the mortgage loan amount must be repaid. Several mortgage types are explained below. You can calculate your monthly payments for the mortgage types with the mortgage calculator on this site.

Amortized mortgage

An amortized mortgage is a mortgage in which the monthly payments remain equal during the loan term and the principal is fully repaid at the end of the loan term. At the beginning of the loan term, mostly interest will be paid and only a small amount of money will be used to decrease the loan amount. This reverses towards the end of the mortgage where you will mainly pay to reduce the loan amount. Interest payments are small then, because a lot of the loan amount is already repaid. Therefore as the mortgage term progresses, you will build equity in your home quicker. An amortized mortgage is also known as a repayment mortgage.

Interest only mortgage

An interest only mortgage is a mortgage in which only interest is paid during the loan term. At the end of the loan term, you will have to pay the loan amount somehow or start a new mortgage. The benefit of a interest only mortgage is that the payments during the loan term are lower, because the loan amount is not repaid at all. The drawback is that you are not building home equity, which may make it harder to refinance the mortgage. In some countries interest only mortgages are combined with a regular investment plan for which regular contributions are made to build a lump sum to repay the mortgage at the end. In addition, interest only interest rates tend to be higher than of fixed rate amortized mortgages.

Linear mortgage

A linear mortgage is a mortgage in which the monthly installments are initially higher but gradually become lower. This is because the loan amount payment per installment remains equal during the loan term. The installments itself will decrease though during the loan term, because less interest has to be paid because the loan amount left decreases. At the end of the loan term the loan amount is fully repaid. Linear mortgages are not common in every country.