A mortgage is a type of loan that is specifically meant to enable an individual or business to purchase real estate. The payment period and interest rate for the loan is usually specified. The person borrowing a mortgage offers the lender some claim on the property that is being purchased to serve as collateral in case he or she defaults in repaying the loan. A mortgage enables an individual or business to purchase a house or building without paying the full price upfront. In case of a default on repayment, the property is sold and the mortgage lender recovers the loan amount.
There are several types of mortgages that are available for home buyers. The two main types are fixed-rate mortgage and adjustable rate mortgage. Generally, a fixed rate mortgage is one whose interest rate remains consistent for the entire duration of the loan, which could be 15, 20 or 30 years. While this consistency may be beneficial, it could become a disadvantage if interest rates were to fall, since the interest payments would be considered high.
An adjustable-rate mortgage, also known as a variable-rate mortgage, has an interest rate that is generally lower than that of the fixed mortgage. In addition, the rates usually fluctuate after the initial period, depending on interest rates during the loan period. This means that if the interest rates increase, your loan payments will also rise.
Another type of mortgage is the Federal Housing Administration loan, which is also called Government Guaranteed Mortgage Loan. This type of loan is meant for first-time home buyers who receive moderate to low income. The interest rate for this type of loan is fixed, and the requirements for qualification are minimal. In addition, a smaller down payment is demanded, making it easy for consumers to purchase homes. However, it is important to note that the amount of the loan may be limited.
A balloon mortgage usually has a fixed rate, with payments that are relatively low. The loan period is usually fixed, and the full balance for the loan is due immediately after the initial period, and should be paid in a single lump sum. The loan period is usually between 5 and 7 years, which makes it risky for many borrowers.
An interest-only mortgage gives the borrower the option of only paying the interest amount for a given period. This means that in the short term, the borrower has very low monthly payments to meet. However, once this period is over, the payments increase to include the principle amount, which could be expensive, especially since the repayment period is significantly shortened by the interest-only period.
A reverse mortgage is one that is meant for senior citizens who have sufficient equity, which is converted to cash. The borrower is not expected to make any payments to the lender as long as he or she resides in the purchased property. In such a case, the interest rate could be fixed or adjustable, depending on the lender. However, borrowers are advised to ensure that a reverse mortgage loan is federally insured before accepting it.
No comments:
Post a Comment