A mortgage is a legal agreement or contract that says that a party has agreed to put up a property, house or piece of real estate, as security for a loan. By doing this, the person who gets the loan can buy a piece of property that he could not afford initially. However, if by chance, he cannot pay the loan, the bank will have to confiscate the property and resell it to someone else.
The lender will hold the title of the property until after the full amount of the loan is paid in plus interest. Depending on the terms of the loan, repayments can take up to several years. The two most common mortgages in the country are a fixed rate mortgage and an adjustable rate mortgage.
How to Choose the Best Mortgage for You
As the name indicates, fixed-rate mortgages have an interest rate that remains the same throughout the life of the loan. If, for example, a loan is processed for 10 years, the interest rate will remain regardless of an increase or decrease in market interest rates.
With an adjustable-rate-mortgage, the interest rate can change at the end of a predetermined interval. For example, if the agreement says interest changes in a six month period, the interest rate will assume the market rate after a six month period. With this kind of mortgage, the borrower is left at the mercy of the market rate. Neither lenders nor borrowers can dictate the interest rate to be awarded. However, to protect both lenders and borrowers, most adjustable-rate mortgages have an interest rate cap that protects them from too many increases or decreases in interest rates.
Balloon mortgages are another type of mortgage, although not as popular as the first two. In a balloon mortgage, the borrower is allowed to make a fixed amount payment for a certain period of time and then make one large payment known as a balloon payment towards the end of the loan. This is actually great especially if you plan to eventually sell the property or to refinance it to buy something else.
What Is a Mortgage Loan?
The payment mortgage that passed is also similar to balloon mortgages except that the borrower is not required to make a large payment at the end of the payment period. What is often done with a pass payment mortgage is initiate a payment with a very small amount. Payments will then gradually increase until they reach a stabilization point.
Knowing how many Americans need homes, the United States government has put in place several government programs that will help borrowers obtain mortgages while reducing the risk to lenders. That way, more and more Americans will be given the opportunity to own a home or other piece of real estate. The Federal Housing Administration, for example, offers low-income and medium-income borrowers a loan by providing protection and benefits to banks and other lending institutions. Borrowers can also take advantage of mortgage insurance, which will ensure that the FHA will pay the difference if the house is sold for less than it was originally worth.
Another government agency, which provides programs for mortgages is the Veterans Administration, which helps qualified veterans get loans. If in case the loan is not paid in full, the VA will carry the loan balance.