Mortgage
loan are loans taken from banks, online brokers or independent mortgage brokers
by pledging property owned for purchasing a residential or commercial property
or to refinance a loan.
Mortgage
loan are usually for a 15 or 30 year period. Mortgage payments are evened out
according to the number of years, rate of interest and the type of mortgage.
The property purchased is used as security or collateral to obtain the debt. If
the borrower of the loan defaults on the mortgage payments the lender has the
right to sell the property by employing the foreclosure process.
To be
eligible for a particular loan the lender examines the employment and income
generation of an individual or family to assess that monthly payment can be
paid regularly by the borrower. The three important aspects that are taken into
consideration to qualify for a loan are:
- Credit Score
- Monthly Income and
- Down Payment
Credit
scores indicate the risk of offering a loan to a borrower. Higher the score
lower the risk. Good credit scores also ensure reasonable terms of loan and
lower rate of interest. Monthly income is evaluated to ensure expenses are not
more than income. The amount paid as down payment reduces the risk of the
lender to cover the full expense of the loan in case of default in payments.
There are
different types of mortgage loan available to suit the requirements of
different borrowers. Some common and popular types of mortgage loan are:
Fixed Rate Mortgages
As the name
suggests such loans carry a fixed rate over the period of the loan. They are
among the most popular mortgage products which are not influenced by interest
rate rise or falls. The interest rates are locked and payments remain same
despite rise or fall in interest rates. Fixed rate mortgages are most popular
when interest rates decline.
Adjustable Rate Mortgages
Adjustable
rate mortgages provide a fixed rate of interest for a specific period and
thereafter resorts to an adjustable rate of interest. ARM fluctuates according
to market interest rate changes after the fixed rate period is complete.
Sub-prime Mortgages
This is a
mortgage scheme directed towards those who have a less than satisfactory credit
score. Credit score ranges between 300-900 and a score below 620 qualify for a
sub-prime mortgage. Considering that the risk is higher in lending a loan to a
sub-prime borrower the monthly payments and interest rates can be high. Such
loans are a profitable venture for lenders on account of earnings from pre
payment penalty, interest charges or foreclosures. Prepayment penalty is a
charge levied on the lender on account of paying the loan before due by either
selling the property or refinancing the loan.
Jumbo Mortgage
There are
specified limits to loans sanctioned to: single family, two families, three
families, or four families. If your loan requirements exceed this limit you
need a jumbo mortgage which charges a higher rate of interest. They are also
known as non conforming loans as they exceed the limit set by Fannie Mae and
Freddie Mac.
Balloon Mortgage
This type of
mortgage allows borrowers a lower rate and monthly payments for a particular
period. Such a period lasts for three to ten years. After the completion of the
term the borrower is required to pay the principal balance as a lump sum
amount. If applicable and possible the balloon mortgage can also be converted
to a fixed rate or adjustable rate loan.
Home Equity Line of Credit
Popularly
known as HELOCs they are variable rate mortgages in line with the prime rate.
You are allowed to take credit up to your credit limit which is the maximum
amount one can borrow under any plan. The interest payments are tax deductible
and one can also pay previous mortgage by taking a percentage of the appraised
value of the home such that the loan amount covers your previous loan balance
and your current fund requirements.
The Interest-Only Mortgage
This type of
mortgage requires only interest payments to be paid for a specific period of
time following which the terms of the loan change and a new mortgage amount is
derived. This new mortgage will be paid with principal plus interest payments
for the remaining number of years.
Lending
leaders offer the lowest interest rate mortgage loan
available. Choose mortgage interest rate or mortgage refinancing options that
best match your situation while saving time and money.
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