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The following article was published in our article directory on December 18, 2013.
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Classifications of Mortgages

Article Category: Finances

Author Name: Dan Rawitch

A mortgage is one classification of loan that is acquired to pay for a house or a real estate. Someone who obtained a mortgage from either a broker or a direct lender must acknowledge that the property or the house serves as a collateral. This simply means that the ownership of the real estate is retained by the lender until the mortgage has been fully paid.

There are several types of mortgages that anyone who is buying a house for the very first time can choose from. Some of the most popular mortgages are discussed below.

Fixed Rate Mortgages or FRM

A fixed rate mortgage is also referred to as either standard mortgage or traditional mortgage. This classification is equipped with fixed mortgage rates. It usually lasts for fifteen to forty years. A homebuyer must remember that a mortgage option with a longer duration oftentimes has higher interest rates. But the monthly expense for a 40-year mortgage tends to be smaller because the amount borrowed is expected to be paid for a longer time period.

Adjustable Rate Mortgage or ARM

An adjustable rate mortgage plan primarily offers its borrowers fixed mortgage rates as well as fixed monthly payments for a number of years. The catch is that the rates are not fixed. This, in essence means that the rates and payments can change over the life span of the loan. An ARM is the right option for a short period of time because it is less costly.

Balloon Mortgage

A balloon mortgage can be directly associated with fixed rate mortgages because of a fixed interested rate as well as a fixed monthly payment. The only difference is the fact that a lending company requires a borrower to pay off the whole balance after a specified and agreed time period. The real estate property can be put up for sale or the loan can be readjusted once the borrower is not capable to pay.

Interest-Only Mortgage

An interest-only mortgage is only an option that a borrower can choose to attach to either a fixed rate mortgage or an adjustable mortgage. There is no need to pay for a principle in a pre-determined duration of time which is normally from three to then years. The only thing that one has to pay for is the mortgage rates. Another good thing about this mortgage plan is that the loan balance does not change. An interest-only option is the best choice for future homeowners with fluctuating incomes, freelancers and consultants for instance.

Reverse Mortgages

A reverse mortgage is considered a special classification primarily because senior citizens are the only people allowed to apply. The lender offers the seniors some cash in exchange for home equity. There is no need to pay off the mortgage until the senior residing in the house decides to move out or dies. The most advantageous about this special mortgage is the fact that seniors can get a hold of cash that can be utilized to spend on other expenses such as medical bills.

Second Mortgages

A second mortgage is simply an additional loan on a real estate property. This is acquired when the initial mortgage has been fully utilized in procuring the house. This is similar to reverse mortgages wherein home equity is traded for cash. The only difference is that a borrower will start paying out right after obtaining the loan.

Individuals who learn about mortgages will definitely find it less difficult to purchase their dreams houses because of the several options offered by lending companies today.

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