Definition of Mortgage according to Dictionary.com is…
- a conveyance of an interest in property as security for the repayment of money borrowed.
- the deed by which such a transaction is effected.
- the rights conferred by it, or the state of the property conveyed.
- Law. to convey or place (real property) under a mortgage.
- to place under advance obligation; pledge: to mortgage one’s life to the defense of democracy.
You and I know that Mortgage is a type of loan you borrow to buy house or property.
It seems simple enough, but, as you look into it deeper, it’s awfully complicated stuff.
There are many different types of Mortgages, but, major types are…
Fixed-Rate Loans.
Adjustable-Rate Loans better known as ARM.
Convertible Mortgage Loans
Balloon Mortgage Loans
Fixed-Rate Loans
Fixed-Rate Loans are most popular by far because you know how much you need to pay every month and it doesn’t change, ever. Every month, you pay exactly same $ amount month after month, year after year. Typical Fixed-Rate terms are 30 years and 15 years.
Current interest rate for 30 year Fixed Mortgage is about 4.16% and
Current interest rate for 15 year Fixed Mortgage is about 3.35%
You may want to get Fixed-Rate Mortgage or refinance when interest rates are lower than normal. This way, your monthly payment is locked with lower interest rate even when interest rates are gone up years later.
Adjustable-Rate Loans better known as ARM.
ARM loan will be adjusted against current market interest rates after an contracted initial term. For example, 3/1 ARM loan offers a fixed rate for the first 3 years and then rate will be adjusted every year after 3 years. 5/1 ARM loan offers a fixed rate for the first 5 years and then rate will be adjusted every year after 5 years.
Adjustment will be calculated by adding margin to an “index rate”.
Common “index rates” are “Cost of Funds Index”, “Treasury bill yields”.
Convertible Mortgage Loans
Convertible Mortgage Loans are ARM loans that allow you to convert to a fixed-rate loan at or before a specified time. The conversion privilege lets you start off with a low variable rate, then lock in when fixed rates drop low enough.
Balloon Mortgage Loans
Balloon Mortgage Loans will let you pay very minimal monthly payments and many times, it’s interest-only payments. This type of loans do not reduce your principle. After given term, years, you must pay full amount including principle loan amounts or refinance the loan. You could face very dangerous situation if you don’t watch, but, larger % of payment can be eligible for the mortgage interest tax deduction.
