MORTGAGE LOANS

A mortgage is the most common form of financing for real estate transactions.

WHAT ARE MORTGAGE LOANS?

An advance of funds from a mortgage, to  mortgagor, secured by real property and evidenced by a document called a mortgage. A mortgage is a device used to create a lien on real estate by contract. It acts as a method of using by which individuals or businesses can buy residential or commercial property without paying the full value. The borrower (Mortgagor) uses a mortgage to pledge real property to the lender (Mortgage) as security against the debt for the rest of the value of the mortgage and an "equity of redemption" (an equitable Title) to the mortgagor.

TYPES OF MORTGAGES:

• Fixed Rate Mortgage (FRM)
• Adjustable Rate Mortgage (ARM)
• Interest Only Mortgage

1. FIXED RATE MORTGAGE:  Fixed Rate Mortgage is one of the common mortgages  in which the rate remains fixed across the life of the loan. The longer the period of the loan the lesser will be the installments or monthly payments that's why  it is recommended that you should go for 30-year fixed-rate mortgages when you are planning to stay in your home for several years because it will give you stable  rate of interest and lesser monthly payments. 15 years fixed rate mortgages are also common but it will have slightly higher installments as compare to 30-year fixed-rate mortgages.

The main advantage of FRMs is that it does not involve any risk factor because monthly payments will never change & remain the same, even if  you lock into a higher interest rate, the rate will not change.

2. ADJUSTABLE  RATE  MORTGAGE: Adjustable Rate Mortgage is one in which rate changes periodically with the movements in the index rate. Increase or decrease of installments or monthly payments is totally depend upon the change in the index rate, fall in index rate leads to lower monthly payment or vice-versa. This type of mortgage is best suited for those who can afford to take the risk of interest rate change.

The advantage of an adjustable-rate mortgage is that monthly payments can decrease when the index goes down. However, monthly payments will increase when the index goes up.

3. INTEREST ONLY MORTGAGE: An Interest Only Mortgage requires that only the interest portion of the payment be submitted, this means that the principle balance remains the same. An interest only mortgage loan offers you greater purchasing, reduced qualifying income, maximizes your cash flow, and also offers a significant monthly payment reduction compared to a conventional mortgage.

The advantages of  interest only mortgage are that the lower monthly mortgage payments let you purchase a home where a fixed mortgage loan would not. You get to jump on the housing bandwagon. Instead of using the cash to pay down your mortgage principal, you can invest in other vehicles such as stocks and mutual funds to generate a superior return.