subject: Brief Overview of Mortgage [print this page] Brief Overview of Mortgage Brief Overview of Mortgage
For many homeowners out there, the term "mortgage"is known all too well; this can either be a good thing or a bad thing. A mortgage is basically loan that is taken out to secure a particular house or property, but within the confines of a mortgage lays the promise by the borrower to pay back the mortgage. A mortgage has been a huge cause of financial problems for many individuals, especially if they do not pay it back on time. Considering that a mortgage is most likely the largest loan that an individual will ever take out, it would probably be best to follow the lender's guidelines as best as possible.
When one applies for a mortgage, he or she does not merely apply for a mortgage as there are a few different types of mortgages. The four main types of mortgages are: Fixed-rate mortgages, Adjustable-rate mortgages, Balloon/reset mortgages and reset mortgages.
Fixed-Rate Mortgages:
First time homebuyers will find comfort in a fixed-rate mortgage because one of the main advantages that come with a fixed-rate mortgage is the fact that it is stable. Regardless how long the term of your fixed-rate mortgage is, the monthly payments will most likely remain the same. This adds in an element of predictability, allowing you to figure out all of your expenses pretty easily. Other distinct advantages that can associate themselves with a fixed-rate mortgage are the aspects of low risk, long-term planning and even protection against inflation.
Adjustable-Rate Mortgages:
A lot of people find adjustable-rate mortgages appealing because they usually start out with really low monthly payments coupled with low interest rates. However, it is important to remember that the monthly payments as well as the interest rates can change throughout the lifespan of an adjustable-rate mortgage. All adjustable-rate mortgages have adjustment periods that help lenders determine when the interest rates can change on a particular adjustable-rate mortgage.
Balloon/Reset Mortgages:
Balloon/reset mortgages are popularized by the fact that they have low monthly payments. However, while these types of mortgages do offer extremely low monthly payments, the entire amount of the mortgage must be paid off in full after the term is over. If the loan is not paid off in full by the end of the term, the there is usually a reset option that literally resets your interest rates back to what they were in the beginning of the term. A lot of people will sometimes call this type of mortgage a two-step mortgage because of the way they are laid out.
Reverse Mortgages:
A reverse mortgage is essentially a baby because it was created not too long ago. A reverse mortgage is basically a mortgage that does not have to be paid back until the home or property that the mortgage is securing is sold, the owner of the home dies or the owner of the home no longer resides there. This is why a reverse mortgage is particular appealing to homeowners who are a bit on the older side. Reverse mortgages also pose distinct tax advantages as well as supplemental retirement income for individuals.
With every mortgage comes responsibility; it is of extreme importance that you do take a mortgage lightly as it could very well be the biggest loan you ever take out. Not paying off a mortgage can have extreme consequences financially that could potentially devastate. Make sure you do some in-depth research on mortgages before getting involved with them.
