Mortgage is a loan to finance the purchase of real estate, within specified payment periods and interest rates. The borrower or the mortgager gives the lender or mortgagee a lien as collateral for the loan. Need for mortgage The need for mortgage arises just to finance the purchase of a real estate. Limits for borrowing Most lenders are prepared to offer 95% of the property's value and charge less interest with a bigger deposit. Types of mortgages 1)Fixed rate mortgages:-the interest rates remain fixed or constant over the entire term of loan. The major advantage of this mortgage is that the repayment remains unaffected even if the interest rate in the market goes up. 2)Adjustable rates mortgage (ARM):-here the interest rates fluctuates or floats over time according to the market situations. The interest rates remain lower than a fixed rate mortgage and a person can qualify for a larger loan. 3)Balloon mortgages:-Here the principal and interest payment remains constant for the term which is 5 to 7 years and the interest is amortized over 30 years. Such mortgages are offered at lower rates than fixed ones to make payments easy. 4)Interest only mortgage:-as the name implies the borrower pays the interest only on the loan during the mortgage term and so the capital remains outstanding. Such mortgages are for a period of 5 to 7 years and at the end of its period one can pay the full principal amount or refinance. 5)Cash back mortgage:-In such mortgage cash payments are given to the borrowers to spend in the manner they like. 6)Second Mortgages:-Such mortgage helps one to borrow money again against the same asset of the first loan. Such amounts can be used to finance secondary priorities like home improvement, debt consolidation and children's higher education. 7)Home loan payment Relief Mortgage:-It is a three year adjustable rate mortgage at one percent point below the national average for such loans after three years the rate will adjust annually to market rates, with rates capped at 1% per year and at the end of 5 years one can repay the loan or apply to refinance and one can enjoy home ownership sooner.. 8)Commercial Mortgages:-such mortgages are also granted for the purchase of real estate but for commercial use and not as household use. With the fast overall developments in the field of construction and investment sectors the growth of commercial loans has accelerated. 9)Bad credit Mortgage:-such mortgages are provided to people having a bad credit position or are on the verge of bankruptcy. One has to compare the rates in the market as the rates are higher on such mortgages but are of extreme help in the situation of financial crisis.
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