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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.
So what is a mortgage? Basically, it is an agreement between you and a lending institution that says you will repay your loan at a certain interest rate over a certain
number of years. The mortgage will be secured against loss with your new home, so if you default, the lending institution will take ownderhip of the home.
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.
But, no matter what type of credit you have, there is most likely a home mortgage that is available to you. So keep trying and get into your dream home now!
Apu Hypallathek is the owner and webmaster of Use Mortgage, a leading Internet directory for mortgage information. For more mortgage information and resources, be sure to visit: http://www.usemortgage.com
Take one right step towards being well informed about mortgage, before you actually take one. Get expert assistance and guidance from qualified professionals about how to deal with mortgage related issues. At MortgageFit Forums, such topics are addressed and assortments of articles are posted to help you take the right decision.
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