is a Mortgage?
A mortgage is the most common form of financing for real estate
transactions. A mortgage is a legal contract between mortgagee
which is generally a bank or other lending institution and a
mortgagor which is the borrower. This legal document contains
the amount of money borrowed to buy the property and the
interest rate that applies. The piece of property is used as
collateral in a mortgage. There are many types of mortgages with
some of the popular ones being, fixed, adjustable,
graduated-payment, graduated-equity, shared-appreciation, and
The most common
type of mortgage program where your monthly payments for
interest and principal never change. Property taxes and
homeowners insurance may increase, but generally your monthly
payments will be very stable.
Fixed rate mortgages are available for 30 years, 20 years, 15
years and even 10 years. There are also "biweekly" mortgages,
which shorten the loan by calling for half the monthly payment
every two weeks. (Since there are 52 weeks in a year, you make
26 payments, or 13 "months" worth, every year.)
Fixed rate have two distinct features.
1) The interest rate remains fixed for the life of the loan.
2) The payments remain level for the life of the loan
The most common fixed rate loans are 15 year and 30 year
These loans generally
begin with an interest rate that is 2-3 percent below a
comparable fixed rate mortgage, and could allow you to buy a
more expensive home.
the interest rate
changes periodically according to a fixed index. This is best
suited for those whose can afford to take the risk of interest
rate change. If the interest rate goes up during the period of
your mortgage your payments will also go up, however; if the
interest rate goes down your payments will decrease.
A mortgage that has level monthly payments of
principal and interest that do not fully amortize the loan. The
balance is due in a lump sum payment at a specified date,
usually at the end of the term.
The word "balloon" means that there is a balance at the end of
the term that must be repaid. The balloon loans offered
today,calculate payments as if the loan was going to be paid off
completely over 30 years. Assuming a rate of 6.5%, for example,
a $100,000 loan would have a balance remaining at the end of the
fifth year of $93,611.
A convertible Mortgage
An adjustable rate mortgage (ARM) that allows a
borrower to switch to a fixed-rate mortgage at a specified point
in the loan term
Usually refers to a fixed-rate, 30-year mortgage that is not
insured by the FHA, Farmers Home Administration (FmHA) or
The amount of Second Mortgage Loans may be up to 100 percent of
the estimated value of the property less the amount of any first
mortgage. A Second Mortgage Installment Loan places an
additional mortgage on your home, but the money usually comes in
a lump sum, rather than in a series of advances made available
by writing checks on an account. Second Mortgages typically have
fixed interest rates and fixed payment amounts.