The Three Main Types of Mortgages
Getting a mortgage and purchasing a home plays an important
role in an Americans life these days. Generally people
cannot afford to purchase a home outright with cash
reserves, so they opt instead to begin looking at getting a
mortgage and purchase a home. Getting a mortgage is a
complex process but is tempered by an exciting outcome.
Basically, a home mortgage is an agreement you sign with a
bank or lending institution that says you will pay them a
certain amount of interest on top of the purchase price over
a certain period of time if they lend you the money. Your
mortgage is secured against the property you will be
purchasing so if you default, the bank will become the owner
of the property.
Home loans in America attract different interest rates
according to the institution you lend from, but you will
find that they are generally lower than a standard personal
loan or credit card offered by the same institution. The
bank or lender can usually afford to offer an amount of
interest lower on home loans because of the extended period
of years in which you will be paying interest, as opposed
to a personal loan or credit card which is usually paid off
in a shorter amount of time. Loan repayments on mortgages
are usually paid fortnightly or monthly and have a term of
around 25-30 years.
There are two major types of home loans in America now, with
a third type becoming more popular in recent years. The
first type of loan is the fixed home loan which allows you
to borrow the money at a specified or fixed rate of interest
for a specific numbers of years. Many borrowers sign up for
this loan because in doing so they avoid the risk of having
to incur extra expenses if home loan interest rates should
fluctuate.
The next type of home mortgage is a variable-rate mortgage.
With a variable-rate loan, the interest rate of the mortgage
changes with the interest rate available to everyone. The
rate is tied to the prime rate determined by the Federal
Reserve, and your bank may change the rate on these types of
loans based on the prime rate. When rates turn downwards,
variable rate loans are great. When the rates go up,
though, many borrowers on tight budgets must scramble to
try and pay their monthly mortgage.
Lately, there has been a new type of mortgage that has been
gaining popularity. Called a "low doc" or bad credit loan,
these types of mortgages usually come with higher fees and
higher interest rates to offset the additional risk to the
lender who is working with those with bad credit. But for
many, these low doc mortgages are the only way people with
poor credit or low incomes can get into the home of their
dreams.
No matter what type of credit you have, there is probably a
mortgage lender out there who will help you make your dream
of home ownership a reality. You just need some patience
and a lot of perseverance to get into the home of your
dreams!
Apu Hypallathek is the owner and webmaster of
Use Mortgage, a
leading Internet directory for mortgage information. For
more mortgage information and resources, please stop by:
http://www.usemortgage.com
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