An Introduction To Mortgages

A mortgage loan is a secured loan that makes use of a property as collateral to secure the repayment of the loan. The mortgagor (borrower) owns the property for all intents and purposes even thought they owe a mortgage on the property. The mortgagee (lender) has the right to foreclose on the property in case the borrower defaults on the property by ceasing to make payments.

Essentially there are two kinds of mortgage loans, fixed rate and adjustable rate. The rates referred to in this nomenclature are interest rates. Due to the evolving nature of the lending market, recently some different types of mortgages have emerged such as specialty mortgages and interest-only mortgages.

Fixed rate loans are not only the oldest type of mortgage but they are still thought of as the best mortgage loan type available. Fixed rate mortgages feature fixed, non-changing interest rates for the period of the loan; in other words a fixed rate loan feature an interest rate that is locked in for the duration of the loan. Fixed rate mortgages are commonly available for 15, 20 and 30 year loans. Many buyers prefer this style of mortgage because it provides protection from rising interest rates.

Adjustable rate mortgages commonly feature lower interest rates initially than fixed rate mortgages. However, once the initial payment offer is complete it is very likely that the adjustable rate will be adjusted upwards. As a result payment amounts will increase right along with the increase in interest rate. It is important when considering an ARM (adjustable rate mortgage) that you factor in interest rate hikes along with payment hikes; make sure your income can support the adjustments.

Interest only loans are loans that require borrowers to make payments based on interest only and only for a limited period of time. This type of loan features low initial payments but, be aware that when the time period expires you might find it extremely hard to adjust to the significantly higher payments due as per the loan agreement. Interest only loans are a good choice for buyers who believe that they will be making a much higher income in the next few years. Most of these loans are made for 5-10 year periods of interest only payments followed by 20-25 years paying principal plus interest.

Specialty mortgages are popping up targeting certain segments of the borrowing market. Reverse mortgages are designed specifically for seniors older than age 62. One FHA program provides loans to borrowers for home repairs; the Streamlined K Mortgage Loan conveniently puts all funds into a single loan.

Mortgages come in many sizes and shapes and are known by many names. Mortgages are the basis of the mortgaging industry and critical to the growth of any country.