A mortgage is an agreement to give up an interest in something if you fail to perform some duty. In many cases, it means that you’ll give up your home if you fail to repay your home loan as agreed. You can use mortgage as a verb, meaning “to pledge”.
Mortgage and “home loan” are often used interchangeably. However, the mortgage is really the agreement that makes your home loan work — the bank wouldn’t lend you hundreds of thousands of dollars unless they knew they could claim your home in the event of your default. Mortgage is a loan to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. The mortgagor’s lien on the property expires when the mortgage is paid off in full.
Mortage and Home Loan
There are several types of Mortgage loans which are Fixed Rate Mortgage, Adjustable Rate of Mortgage, Jumbo Mortgage, Equity mortgage finance, Convertible Adjustable Mortgage, Blanket mortgage, lease purchased mortgage, Shared Appreciation mortgage, balloon mortgage, Graduated payment mortgageandSub Prime mortgageetc. These mortgage loans types have different characteristics and each one has its own parameters. However, it is the duty of borrowers to find out the most suitable mortgage loan that not only fulfill their needs but also easy to carry on.
Fixed Rate Mortgage is very famous and best mortgage loan types. In this mortgage, mark up rate is fixed for the entire loan life. Usually lender charges high rate of mark up in order to mitigate the risk of increase in mark up rates in future.
Adjustable rate of Mortgage is often called ARM. In ARM, mark up rate is not fixed but in contrast, it changes after the initial period. The review of mark up rate is mutually decided by lender and borrower.
Jumbo mortgage is specially designed to help high net worth individuals to purchase luxury homes. It comes with higher interest rate and usually starts from 5,500. Below that amount, normal mainstream financing is treated.
In Equity Mortgage, borrower obtains loan against residential property. It is simply called credit limit account. Commercial banks usually allow their tested clients to avail this facility.
Convertible adjustable rate mortgage is that in which borrower can adjust mark up from adjustable rate to fixed rate. Usually borrower can only exercise this option after completing a specific period of time as set by lender.
In Blanket mortgage, lender accepts two properties as collateral. This is usually very secure finance and comes with lower pricing. Purpose behind this finance is to secure the loan by taking extra property.
Lease Purchase mortgage loan is alternative way to obtain loan. The purpose behind this mortgage loan is to give lower and middle level income borrowers the right to obtain mortgage at the end of tenor by making extra amount.
Shared Appreciation mortgage is commonly called as SAM. In SAM, lender or third party involved in loan to share in property in future appreciated value. In return, borrower is offered lower mark up pricing rate.
Balloon Mortgage is also a type of mortgage loan where lenders allow the borrowers to pay installments at start of loan and in the end, pay equity or down payment portion. In Graduated payment mortgage which is also called GPM, payments of installment increases for a specific period of time and then level off. This is the only mortgage loan which is built on negative amortization.
Sub Prime Mortgage allows lender to finance even borrower has bad credit score or history of foreclosure. This is high rate of mortgage and very easy to avail.
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