A mortgage loan is basically a type of credit that is secured by a real property through the use of a mortgage. Mortgage loans usually have a fixed interest rate and a fixed term of years with the monthly payment or amortization spread evenly across the term.
There are many types of mortgage loans out there and they can get pretty confusing, so read along and get to know the different types of mortgage so you know which kind will suit your needs
- The Fixed rate mortgage – in this mortgage, the interest rate and monthly mortgage payments remain the same over a fixed period. It is for 10, 15, 20, 25, 30 and 40 years. Generally, the shorter the term for your loan the lower the interest expense. The more popular fixed rate mortgage loan terms are the 15-year term and the 30-year term. The 15-year term will require you to pay increased monthly payments but you can save on the interest expense. While the 30-year term will allow you to have higher interest expense but you have a much lower amount for the monthly payments.
- The Adjustable rate mortgage – another type of mortgage in which interest rates is variable and can fluctuate over the term of the loan. The interest rate is dependent on the index that is agreed upon at the start of your loan.
- The Balloon mortgage – are short-term fixed loans that require fixed monthly payments based on a 30-year term and a fixed lump sum payment at the end of the period. This type of loan usually has terms of 3, 5 or 7 years. It generally has a lower interest rate compared to the 15 or 30-year term mortgage. The main disadvantage is that it requires you to pay a lump sum amount at the end of the term.
- The Buy down mortgage – starts with a low interest rate but will in turn increase by a fixed amount over a span of 1-3 years. The initial discounted interest rate will enable you to pay lower interest expenses and lower monthly amortization while starting out.
- The Endowment mortgage – this mortgage makes use of endowment policies.
- The Guaranteed payment loan mortgage – here, payments start low and gradually increases at predetermined times on the life of the loan. The lower initial payment will be an advantage so you can qualify and apply for a larger loan amount, but in turn the monthly payments will be higher.
- The Reverse mortgage – also known as lifetime mortgage. This type of mortgage is made available to senior borrowers and it presents them an option of not paying any amortization. Upon death, the property is surrendered to the lender as a form of payment for the loan.
- Other types of mortgage loans are seasoned mortgage, Wraparound mortgage and Non-conforming mortgage.
These are the most common kinds of mortgage loans available. Remember that it is much wiser to ask your account officer or lending manager for further clarification with the different types of loans and what they presently offer.
Related posts:
Loading ...
Leave a Reply