Types of Mortgage Loans

mortgage loans

A mortgage loans can be acquired from banks, online brokers or private brokers. This loan can be acquired pledging existing owned properties to buy more commercial or residential properties. Mortgage loans are also acquired for the purpose of refinancing other loans. This loan is usually taken over a period of fifteen to thirty years. The interest rate, mortgage type and period of loan determine the payment distribution over the years.

The purchased property is usually used as a collateral security by the lender. In case the borrower defaults in payments, the property can be sold off by the lender using the foreclosure process.

The following are the popular types of mortgage loans:

• Balloon mortgage – This option offers borrowers a lower interest rate for a fixed period. This fixed period does not prolong more than three to ten years. Once the fixed period gets over, the borrower must repay the principle amount in full.
• Interest-only mortgage – With this option, the borrower is only required to pay the interest rate for a certain period. Once this period is over, the loan is transferred and there is a new mortgage amount. The principal payments, the new amount, and the remaining interest amounts should all be repaid to the lender at the end of the period.
• Fixed rate mortgage – These loans charge a fixed interest rate throughout the loan period. These are quite popular with borrowers, because they continue to pay the fixed rate regardless of the rise or fall in the interest rates. Since the fluctuation in interest rates has no effect on the interest payments, the rates remain the same in this option.
• Sub-prime mortgage – This option is specifically designed for people who have low credit scores. The lender is in a riskier situation with this option. However, lenders charge higher monthly payments and interest rates to compensate for the risk. A penalty falls on the lender’s end in case the borrower repays the due amount before the expected time.