The Truth About Mortgage Loans

A mortgage loan, or a mortgage, is a loan secured with the borrower’s real property as collateral. The borrower must have the title of a house in order to get the loan. Before receiving the money, he should place a lien of the house on the lending institution. You can make use of a mortgage loan to purchase a house. And you can use it to borrow money for other purposes as well.

The typical term of a mortgage loan is 30 years. If you default on making the repayment on time, you will confront a foreclosure. The lender will lodge a claim on the borrower. Usually, he chooses to sell the house to make up for his loss.

In a mortgage, you make the payment once a month. If you pay the money in time every month, then your equity of the house accrues as time goes on. When you finish paying off the loan, the lien becomes void and the house is completely yours.

Types of Mortgage Loans

There are two fundamental types of mortgages – fixed-rate mortgages(FRM) and adjustable-rate mortgages(ARM).

  • Fixed-Rate Mortgages(FRM)

A fixed-rate mortgage is a mortgage offered with a fix interest rate. It belongs to the traditional type. In this kind of loan, you have to make the payment every month. And the monthly payment of principal and interest remains the same in the whole term. The situation of housing market is prosperous sometimes. But during some tough periods it faces an economic downturn. No matter which direction the housing market runs into, the amount of money that you pay monthly is always the same. Both the lender and the borrower bear less risk of an unstable housing market.

  • Adjustable-Rate Mortgages(ARM)

However, the interest rate of an adjustable-rate mortgage changes according to the market condition. The rate stays the same during the initial term. And it is often lower than the market rate to appeal to customers. Whereas it is hard to predicate the accurate interest rate after the initial term. The rise and fall of housing market affect the amount of your payment greatly. You should be careful in this loan. Once the interest rate reaches a much higher stage, perhaps you will fail to pay the loan off.

Beside the above two typical types of mortgages, here are other common mortgage loans, such as payment-option ARMs, interest-only mortgages, and Jumbo mortgages.

Furthermore, you should figure out the total amount of the repayment. In this case, a mortgage calculator does help you a lot.



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