Mortgage Types

A mortgage is a long term loan that is given by a lender to a borrower for purchase of a property in which the property is the ‘collateral’. As the mortgage is repaid over an extended period of time the lender charges an interest for the use of the money that has been lent. In USA there are two conventional types of mortgage loans that are offered. One is the Fixed Rate Mortgage (FRM) and the other is the Adjustable Rate Mortgage (ARM). There are several other mortgage loan types worldwide but all of them are some flavor of the tow types of mortgage loans that have been mentioned. In all mortgage types there is a borrower and a lender and the mortgage loan amount and the interest rate and the number of installments in which the loan and the interest are to be returned.

In a fixed rate mortgage a borrower will take a mortgage loan at an agreed fixed interest rate and then repay it over the term of the installments. For example one takes a $ 200,000 mortgage at 6% interest for 30 years. Most Fixed Rate Mortgage loans in USA have a maximum term of 30 years. The installment schedule and installment amount is worked out by an amortization calculator or an amortization schedule. Amortization calculators and amortization schedules are easily available on the internet and all what one needs to feed in is the principal amount, the interest rate and the number of installments and one can get the amortization schedule. There is a preference for fixed rate type of mortgage loan as one is well aware of what one has to pay regularly and so one does not have to worry about the installments changing after some time.

In an adjustable rate mortgage all other factors remain the same except the interest rate. The interest rate in fixed for a part of the entire period of the repayments and is revised after that period. Assuming that one takes a adjustable rate mortgage for 30 years and the interest is reviewed after every 3 years this means that one only knows the payments that one has to make for three years as after that with a revision of the interest rates the installment payment may increase or decrease after the three years end and the interest rate comes up for review. Some people prefer this type of mortgage as most ARMS are priced lower then the FRM. However with revisions of interest rates one may eventually end up paying more in interest then on an FRM loan. The home loan mortgage type that one chooses to get is dependent on how comfortable one feels with the type of mortgage loan one is taking. Different types of home mortgages in the USA are generally the two that have been described.

There are other unconventional mortgage types also like balloon, reverse mortgage, lifetime mortgage, jumbo mortgage, participation mortgage, etc. in some of these unconventional mortgage types one only pays the interest and the principal becomes due after a certain period. For older people there are mortgages where the person does not pay any interest or principal and they are rolled up for the term of the mortgage loan.

The annual statistics on types of mortgages are published in the US and mortgage companies and mortgage brokers use them to see what the mortgage business trend is. Different types of home mortgages are offered by some real estate developers where they are trying to sell a newly developed residential estate and offer all buyers a blanket mortgage.

So it depends whether one is looking to buy a home which is already constructed, or is under construction one can get different types of mortgages offered on them.