Loading
Different Types Of Mortgages
Mortgages are large loans used to purchase a home or property such as a commercial building. Just like there are many different types of properties available for purchase, there are different types of mortgages too. Where they are all similar, however, is in the fact that the property for which the loan is made will always serve as a security on it.
For instance, a couple wants to buy a three bedroom home and they take a twenty year mortgage for the property. Should they fail to make their payments, the bank can then take the home as a way of compensation for the money they are about to lose.
Types of Mortgages
Currently, there are several types of mortgages available for consumers and businesses to use. There are primary mortgages which are the only loans taken on the property. These can be for a range of terms that extend for a single year and up to forty years or more. They can come with a fixed rate of interest, or they can be a variable rate of interest that kicks in after the loan has existed for a specific period of time.
For example, most of the unpopular sub-prime mortgages were started at remarkably low rates of interest known as 'teaser rates'. At the end of the introductory period, however, the rate on these loans bolted to unprecedented and basically unpayable amounts.
There are also many different types of second mortgages that include home equity loans and lines of credit. These are usually an option for people with a low first mortgage and a higher home value. There are also options for second mortgages for homeowners facing major difficulties in becoming current with their primary or first mortgages as well.
There are also balloon mortgages, which can be seen as somewhat risky because the bulk of the sum due is paid after a pre-set term. For instance, there are three, five and seven year balloon loan options that see the loan due in full at the end of the established period.
Finally, there are reverse mortgages that allow the homeowner to receive a set monthly income based on the value of their fully-paid home. This is usually something selected by a senior as a way of making ends meet.
Choosing from the Different Types of Mortgages
It can often be extremely confusing to navigate through the sea of different types of mortgages, and this is the reason it is important to sit down with a financial or lending professional before making a final choice.