The Mortgage

What is a Mortgage?

A mortgage (by law) protects a creditor by giving him a part of his property from his debtor. In common law, the mortgagor sold realty or personal property, but if the debtor paid the debt by a certain time, the mortgage was cancelled. The debtor had still had legal title, the mortgagor equal title, and both estates were still able to be sold.

Today, in the United States we view mortgages as liens on property. What happens under the two systems is the same. If the debtor does not pay the debt, the creditor seeks a court-ordered sale of the property, and the debt is paid out of the proceeds.

In a reverse mortgage, a homeowner borrows against the value of a house to receive a line of credit or monthly payments. Reverse mortgages are used by older homeowners as a way of obtaining cash, and normally the loan is paid off when the homeowner dies or sells the property.

There are three main types of home loans that you can choose. Each one has its pros and cons, and each are specialized for a certain type purchase when picking a home.

Fixed Rate Home Loans

Why would I use this loan?

A fixed rate home loan is the most basic type of home loan. The interest rate stays the same throughout the entire loan. It is best if you feel like you are going to live in one house for between 15 and 30 years.

What's the catch?

However, since the actual rate stays the same that does not mean that the taxes or insurance will not increase over time. Therefore, your mortgage bill might gradually rise in amount, especially with the tax rates today.

Anything else?

Another important thing about fixed rate loans is that the longer your loan is, the less monthly you will end up paying, but the interest rate will be higher, resulting in an overall payment increase, and vice versa for shorter loans. Less overall interest yields a higher monthly pay.

Adjustable Rate Mortgage (ARM)

Why use an ARM?

An ARM has a few things that set it apart from other loans. The most important thing about them is that you can schedule a change in the interest rate. This is best for people that are expecting a higher salary over the years, but want to start with a low interest rate.

What's the catch?

The catch is that when using an ARM, the interest rate is controlled by the U.S. Treasury, and may change over the years. The way to counter this is to try to get a fixed rate for a number of years when you ask for your loan. After the numbers of years are up, then the rate is susceptible to change. What else?

The last thing about an ARM is that it can help you qualify for a larger loan than if you asked for a fixed rate.

Balloon mortgage

Why use a balloon mortgage?

A balloon mortgage is a short-term, low interest mortgage. 5 to 7 years is best for this mortgage, and is good if you want to sell or refinance your home. This loan is also good if you are unsure about how long you want a mortgage for.

What's the catch?

The catch is that at the end of the term, you have two choices. One is to pay for the rest of the mortgage on the spot, and the other is to refinance the loan.

Anything else?

Balloon mortgages have certain conditions in which they operate, and they differ from company to company. Be sure to ask your dealer if they do balloon mortgages and what the qualifications are for them.

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