Types Of Mortgages in Real Estate

The word ‘mortgage’ is a very important term in the real estate world. There are various kinds of mortgages and it is always good to know what the various kinds of mortgages can be. There are various types of mortgages other than the conventional and orthodox fixed- rate mortgages.


Adjustable rate-mortgage

The mortgage loan wherein a fixed initial interest rate and a fixed initial monthly payment is made after which the interest rate is adjusted on a regular interval depending upon various indices. These indices are

1. Constant-maturity Treasury (CMT) securities
2. The Cost of Funds Index (COFI)
3. The London Interbank Offered Rate (LIBOR)

The initial interest rate is lower than that of a fixed-rate mortgage. The interest rates are changed periodically. The interest rate is a summation of two factors: the index and the margin. Margin is the extra amount that the lender asks for and the indices give the figure of the interest rate to be paid.

Balloon payment mortgage

This kind of mortgage involves small periodic payments till the completion of the term and then rest of the amount is paid in lump sum by the person concerned. It is called the Balloon payment because the final amount that is paid at the end of the term is a huge figure. As the definition suggests, this kind of mortgage is a fixed-rate non amortized mortgage. The maturity term finishes with the completion of a few years and then the borrower has to pay the left out amount as a whole in lump sum.

FHA mortgage

These types of loans involve the Federal Housing Administration that insures the loans or the conventional mortgages. One can purchase or refinance the loans with a low down payment. This kind of loans is of great advantage for the first time buyer, although anyone can subscribe to FHA mortgage loans. This kind of loan also offers a great home-purchasing opportunity to the American citizens with a low income.

Purchase-money mortgage

This is the type of purchasing and selling which involves a direct agreement between the seller and the buyer. The buyer borrows money from the seller instead of/in addition to other organizations or banks.

Biweekly Mortgage

A fixed rate mortgage wherein the payments are made every 2 weeks. A month consists of approximately 4 weeks hence the monthly amount is divided into two. Approximately 26 payments are made in a year by the borrower. The principal amount is paid faster than normal and the interest rate over the whole mortgage term decreases substantially.