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What 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 balloon mortgages

Fixed-Rate Mortgage

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 mortgages.

Adjustable-Rate Mortgage

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.

Balloon Mortgage

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 Veterans Administration.

Second Mortgages
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.




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