What is a Mortgage Loan?
If you are pursuing the American dream of becoming a home owner for the first time, you may find the process overwhelming. Especially when the price listing is outrageously high. However, there is no need to worry as that is where mortgage loans come into play. Mortgage loans are a type of loan specifically used for purchasing a home, where the home is used as collateral.
Mortgage loans can very in amount and with different rates. Some well known varieties of mortgage loans are:
- Fixed rate mortgages: The interest rate the borrower pays back is fixed over the life of the mortgage loans and all the payments are equal in size
- Interest only mortgages: Mortgage loans where the payment amounts fluctuate as the borrower only makes the interest payments to begin with and then overtime, payment balances increase and money is applied to the principal
- Adjustable Rate Mortgages (ARM): The promotional interest rate on the loan, tends to be lower then that of a fixed rate mortgage loan, however the interest rate eventually resets to market conditions and the rate can fluctuate over the length of the loan
- Jumbo Mortgage Loans: A mortgage loan in an amountlarger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, the interest rate tends to be higher for jumbo loans than mortgage loans that do not exceed the FNMA and FHLMC limits
It is important to note that there are close to a dozen types of mortgage loans. Each loan offers both benefits and limitations to the borrower. If you are considering taking the leap into home ownership, you need to take the time to research all types of mortgage loans, weight the pros and cons and fit them into your personal strategy for home ownership.
