Mortgage types
The types of mortgage loans available to our ancestors were very limited in number as compared to the mortgage types available to us these days. Now we do not only have different types of mortgage, but we have sufficient number of these types that can be categorized in broad categories. Let us take a look.
Various Categories of Mortgage Loans:
The Popular Mortgage Types:
Among the popular types of mortgages, following are worth discussing and explaining:
● Fixed rate mortgages:
The fixed rate mortgages have an interest rate that remains fixed for a certain period of time regardless of the movements in the interest rates and these mortgages have generally longer term to maturity. The mortgage interest rate charged on fixed loans is generally higher than the rates on other mortgage types so as to compensate the lender against the adverse movements in the interest rates.
● FHA mortgage loans:
FHA mortgage loans are insured by the FHA so as to help the borrower with problems in credit history to get a loan. This is a home loans type that is not suitable for everyone because of the limits on the amount of money that can be borrowed under the FHA mortgage loan plan. FHA mortgage loans are best suited for the people with decent, but not excellent credit history together with the first time borrowers who are getting the new home mortgage.
● VA loans:
In United States, the VA loans are available to veterans of US armed services and the spouses of deceased veterans by giving them the advantage of zero down payments. These loans are issued by the traditional lenders, but the mortgages are insured by the Veterans administration.
● Interest only mortgages:
As opposed to the name, the interest only mortgages do not pay only interest and thus the name of this mortgage type seems somewhat misleading. The name of this mortgage type has originated from the option embedded in the mortgage of paying only interest but for a certain time period. After that period of time lapses, the payment must include both the interest and the principal. However, there are also certain small mortgages that require the payment of only interest till the time the balloon payment is made at maturity that includes the original loan amount.
The Hybrid Mortgage Types:
There are certain mortgages that have the characteristics of hybrid mortgage types and some of these are discussed as under:
● The option adjustable rate mortgage (ARM):
The option adjustable rate mortgages are a bit complicated in that the mortgage rate on these loans is variable like the adjustable rate mortgages have, but the borrower has the option to select from a range of index rates and thus giving borrower an option. But the borrower of option adjustable rate mortgage loans needs to be aware of the minimum payment option and thus the negative amortization.
● Piggyback mortgage loans:
The piggyback mortgage is comprised of the two mortgages; the first mortgage and the second mortgage on these mortgages can be of different types, the fixed rate mortgage, adjustable rate mortgage or some combination of the two types. The borrowers have taken two loans on the same collateral on which the first lender has the first lien and the second lender has the secondary rights and the borrower is in the position to take out two loans because of less than twenty percent down payment requirements.
● Adjustable rate mortgages:
As the name suggest, the adjustable rate mortgages have the interest rate that fluctuates with some index rate. The index rate can be the Treasury bill rate, prime rate of the lender bank or the London Interbank Offer Rate (LIBOR). The interest rate fluctuations can occur monthly, quarterly, biannually or even on an annual basis.
● Mortgage buydowns:
Mortgage buydown is the best mortgage for the borrowers who want to lower the initial interest rate by paying higher fees in the beginning thus they buy down the interest rate and are called as buydowns.
The Specialty Mortgage Types:
The specialty mortgage types have very unique features and characteristics and some of these mortgages are discussed as under:
● Bridge mortgage loan:
As the name of the mortgage suggests, this type of mortgage loans are taken as interim loans when the seller of the house has set the house at sale, but it is not yet sold, but the seller has to buy another house in the meantime. The bridge mortgage loans are meant to provide the finances to bridge the gap between the payment and receipt, but of course not without fees or charges and the seller’s existing house serves as collateral for the bridging or the swing loans.
● Reverse mortgages:
Reverse mortgage is available to anybody of age more than sixty two years and has sufficient equity required by the lender. As the name suggests, this type of mortgage is reverse of conventional mortgage where the mortgage payment is made by the lender instead of borrower till the time the borrower resides in the house and after that the title of the house is transferred to the lender.
● Bad credit mortgages:
There are certain financial institutions that offer bad credit mortgage for the people having poor credit score. These high risk takers consider that the past loan performance is not an indication of the borrower’s current ability to repay the loan, however, the interest rate charged by these institutions are higher than traditional mortgages so as to compensate them for the high risk they take.
UK mortgage market is very competitive together with the mortgage markets of many other countries. You can find a lot of information on the internet about the huge mortgage markets of the world. If you want to learn more about the mortgage types and mortgage leads, search the web for interesting facts and do not forget to browse for the First mortgage, South mortgage and for the various Online mortgage lending companies.