Mortgage Loans – Understanding the different types of Mortgage loans
Conventional mortgage loans
Almost every American is aware of what mortgage means. It is an agreement in which a loan is obtained against property. If you have a property that is registered in your name, you can use it to obtain loans on condition that in case you fail to repay the loan, you forfeit the property. You can also take a home loan by mortgaging the home you plan to buy. There are different kinds of mortgage loans available in the United States. One of the most common kinds is the conventional mortgage loan. This mortgage loan provides a greater flexibility for repayment. You can take the loan for a period of thirty years and so, pay lower monthly installments. However, the cumulative amount of interest that you end up paying at the end of term is substantial. If you mortgage your property for a shorter period, say fifteen years, you can save a lot of money on interest rates but have to pay high monthly installments. Although the cheapest in terms of interests, this is also risky because if you cannot pay the high monthly installments, you tend to lose the property.
Fixed mortgage loans and fixed second mortgage loans
Broadly classifying, there are two kinds of mortgages – fixed mortgage rate and variable mortgage rate. As the names indicate, a fixed mortgage interest loan retains the same rate of interest all through the loan period. Fixed rate mortgage is preferred because it is safer and steadier. Borrowers can plan their budgets accordingly. You can also take a second mortgage if the first mortgage is on the property. Interest rates are higher for second mortgage.
Variable rates of mortgage
Variable rate of mortgage brings a variation based on your regularity of repayment, amount left to repay and market index. Even if you do choose variable rate, it is recommended that you convert the mortgage into fixed mortgage loan at the earliest opportunity. Variable or adjustable mortgage system offers a fixed interest rate for a fixed period and then varies the interest rate periodically. If the economy falls or the lending institution is in financial crisis, chances are high that your interest rate can increase.
Jumbo mortgages
Jumbo mortgages are special loans that offer you more than your property is worth. This is possible because your mortgage deed is bought by agencies that hold them until the mortgage loan is repaid. In case you cannot repay the loan, your property will belong to the agency and not to the bank. Since the lending agency will already have recovered the amount lent to you, they feel free to offer more loan amount. However, there are limitations on the amount of excess that a lending body can lend. The upper cap varies every year. The interest rates offered under this type of mortgage is very high. If the amount lent to you is more than this upper cap, the mortgage is called Jumbo mortgage. Although you get more money for your needs, this is a risky practice and not recommended because you will end up paying a lot more than you borrowed.
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