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Basic Types of Mortgage Loans

By: Dixon

A mortgage loan is a loan on real estate that is usually secured by a security interest. These days, there are a whole lot of mortgage loan options. But before applying for one, it’s better to have an awareness regarding at least the basics. There are different types of mortgage loans.

Conforming Loans – The loans comply with requirements set down by Fannie Mae and Freddie Mac, two government sponsored entities that buy and sell loans from mortgage lenders. These entities put strict caps on the loans they will buy, with single-family homes having a mortgage cap in the range of $360,000.
With the booming real estate market, many areas such as San Diego do not come close to fitting into the conforming loan market since homes average in the $600,000 range.

Non-Conforming Loans – Known as “Jumbo Loans”, these mortgages are written for loans that exceed the $360,000 cap mentioned previously. They tend to have slightly higher interest rates, but are readily available.

Bad Credit Mortgage Loans – Nowadays there are many programs available to help people who have recently suffered a bankruptcy or foreclosure get a mortgage loan or mortgage refinance loan. These are called bad credit mortgage loans. In the mortgage industry, mortgage brokers often refer to a borrower’s “paper.” This paper refers to people with less than stellar credit. “B” paper refers to relatively small problems, while “D” paper refers to bigger issues such as bankruptcy filings. The worse your paper, the more you can expect to pay in interest, points and down payment amounts. You need to carefully determine whether paying these extra penalties makes financial sense.

Adjustable rate mortgages (ARM) – Adjustable rate mortgages are those loans which can help you finance the purchase of a home with low interest rates. An ARM is ideal for those who expect their income to rise or move in a couple of years. These adjustable rate mortgages increases your risk for higher payments. But safeguards too are there. In order to protect borrowers from sky-rocketing monthly payments, mortgage lenders put in place safeguards. For example, a point cap limits how much interest rates can rise monthly and over the life of the loan. There are also ceiling limits on how low rates can go, protecting the lender. Another safeguard is a dollar cap on monthly payments. However, if interest rates rise higher than the dollar cap allows, you may end up with a longer loan. Many financing companies also allow you to convert your ARM to a fixed rate mortgage after a predetermined period.

Fixed rate mortgages – Fixed rate mortgages are the most common type of mortgage loan for home buyers. With predictable payments, long term homeowners can plan their budgets and guard against rising interest rates. But a fixed rate mortgage is not for everyone with its higher interest rates and a reduction in your buying power. Set rates, long term low monthly payments, and low risk etc. are certain characteristic features of fixed rate mortgage loans.

With each of the above loans, you’ll have an option of going with a fixed interest rate or an adjustable rate. Fixed interest rates simply set an authoritative interest rate that will be charged over the length of the loan. Adjustable rates typically start at a figure lower than fixed rates, but can be moved up to reflect changes in the cost of borrowing money. In many ways, you are calculating whether interest rates will increase in the future.

Basic mortgage loan options still suffice when it comes to borrowing money, for a great majority of people. Don’t worry if you have problems qualifying for these loans. There are many other options on the market these days like FHA (The Federal Housing Administration) Mortgage Loans that insures mortgages to allow moderate income families to purchase their own home; Balloon or Reset Mortgage Loans which offers lower interest rates with the option in 5 or 7 years to pay off the balance or resent the loan; Subprime Mortgage Loans that offer a variety of mortgage loan packages from different lending companies regardless of credit score; Personal Mortgage Loans and a lot more.

Article Source: http://www.particlearticles.com

Dixon Carlile is a celebrated loan specialist. His articles discuss the salient aspects of everything that comes under the finance supermarket spectrum.

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