What is a Mortgage Loan?
A mortgage is a type of loan used to purchase real estate. The property serves as collateral for the loan, and the borrower makes payments to the lender until the loan is fully repaid. Mortgages typically have a term of 15 or 30 years and the interest rate can be fixed or adjustable. The lender will typically require a down payment and may also require the borrower to have private mortgage insurance if the down payment is less than 20% of the purchase price.
There are several types of mortgages, including:
Fixed-rate mortgage:
The interest rate on a fixed-rate mortgage remains the same for the entire term of the loan. This allows for budgeting and predictability in terms of monthly payments.
Adjustable-rate mortgage (ARM):
The interest rate on an adjustable-rate mortgage can change over time, usually based on an index. The rate will adjust periodically, usually annually, and the payments will increase or decrease accordingly.
FHA loan:
This type of mortgage is insured by the Federal Housing Administration (FHA) and is designed for borrowers with lower credit scores or limited funds for a down payment.
VA loan:
This type of mortgage is guaranteed by the Department of Veterans Affairs (VA) and is available to eligible veterans, active-duty military personnel, and their surviving spouses.
Jumbo loan:
This type of mortgage is for high-value properties and typically requires a larger down payment and higher credit score than a conventional loan.
Interest-only mortgage:
This type of mortgage allows borrowers to pay only the interest on the loan for a certain period of time, typically 5 to 10 years. After that, the borrower must start paying off the principal.
Balloon mortgage:
This type of mortgage has a short-term, usually 5 to 7 years, after which the remaining balance is due in full.
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