Mortgage Loans
Mortgage loans are loans secured by a mortgage on real estate. Because the value of the real property lowers a creditor's risk, a mortgage loan is oftentimes much cheaper than other loan products. Furthermore, homeowners will find a wide array of loan options at their disposal. The suitable loan package will depend on the prospective borrower's financial situation, both current and future, as well as his or her individual needs.
Before financing their home or applying for a mortgage loan, consumers should familiarize themselves with the rudimentary elements of home mortgage loans, so as to ensure a judicious choice and maximize their benefits. The following guide will walk you through the mortgage loan basics and equip you with the knowledge needed to select the mortgage loan that is right for you:
Borrowers can choose to apply for a home mortgage loan either in person or online. The loan process consists of the following steps:
Prospective borrowers should first research and compare mortgage companies or brokers by considering such factors as loan options, fees, and lock-in policies. Upon deciding on a lender, they will have to complete a mortgage application form. The standard application requires basic information such as (1) the borrower's age, (2) the applicant's income sources and employment situation, (3) his or her debts and assets, (4) the borrower's current housing costs, (5) the loan amount and type of mortgage required by the applicant, and (6) his or her location. The online mortgage loan process boasts fewer formalities than the average brick and mortar lending office. It offers convenience, simplicity, expediency, affordability. Borrowers may fill out an online mortgage application from the comfort of their own home and at their own leisure. Furthermore, they benefit from instant approval. Typically, borrowers can expect a quote within 24 to 72 hours. However, there are numerous competitive mortgage lenders who approve applications within a few hours. By virtue of the fact that the majority of websites are encrypted with SSL or secured socket layer encryption, the online application process is as safe and secure as alternative methods.
The most popular home mortgage loan programs are as follows:
1. Fixed-Rate Mortgage Loan
With a fixed-rate mortgage, the monthly payments and interest rate remain the same for the life of the loan. At the beginning of the loan period, borrowers apply payments to the interest and towards the end of the loan, payments are credited to the principal. Amortization periods for fixed-rate mortgage loans include 10, 15 and 30 years.
2. Interest-Only Mortgage Loan
This type of home loan allows borrowers the option of paying only the interest during the first five or ten years. After that period, they will be required to make principal and interest payments for the balance of the loan period.
3. Two-Step Mortgage
Loan In this loan program, the interest rate stays the same for the first seven years and is then adjusted once for the remainder of the loan term.
4. Conforming Loan
A conforming mortgage loan offers borrowers an amount not exceeding $417,000 (higher limits for Hawaii and Alaska)
5. Jumbo Loan
This type of home mortgage loan is for an amount higher than conventional/conforming loan limits, which distinguish the loans that can be purchased by Freddie Mac and Fannie Mae, the most important purchasers of residential mortgages in the U.S.. A borrower applying for a jumbo mortgage loan may request $417,000 or more (higher limits for Alaska and Hawaii). A super jumbo mortgage is a loan that exceeds $650,000.
6. Piggyback/Combo Mortgage Loan
This type of mortgage financing consists of a first and second mortgage, with or without a down payment. Piggyback/combo mortgage loans may be either fixed-rate, adjustable-rate, or a combination of the two. One benefit extended by this type of home mortgage loan is the waiver of the requirement that borrowers pay private mortgage insurance (PMI).
7. Adjustable-Rate (ARM) or Variable-Rate Mortgage Loans
This loan program features a variable interest rate that is adjusted periodically in conformity with the mortgage index to which it is pegged. The interest rate fluctuates- either remaining fixed for a specific time period before adjusting or moving upward or downward on a monthly, semi-annual or annual basis. Payment caps are placed on adjustable mortgage loans; these serve to restrict the level of rate change that may take place in certain time periods. The majority of ARM loans are hybrids, consisting of an initial fixed term followed by an adjustable term. The amortization period for ARM loans is usually 30 years.
8. Payment-Option Loans
A payment option mortgage loan allows borrowers to make mortgage payments in 4 different ways:
- Pay only the monthly interest that is due;
- Pay principal and interest in full;
- Pay only part of the interest; or
- Make more than the full payment
9. Balloon Mortgage Loans
For a fixed number of years, a balloon mortgage operates like a fixed-rate mortgage. Once that period ends, borrowers must repay the loan in full by making one "balloon" payment. A mortgage loan calculator enables prospective borrowers to calculate their monthly payments by entering the 1) mortgage amount, 2) mortgage term, and 3) interest rate. A mortgage required income calculator helps consumers figure out the income needed to be eligible for a specific mortgage amount. Refinance interest savings calculators assist borrowers in determining whether a mortgage refinance is appropriate for them. Consumers may also avail themselves of other online mortgage calculators, include the following:
- Mortgage APR (annual percentage rate) calculator
- Interest-only calculator
- Balloon mortgage calculator
- ARM vs. fixed-rate mortgage calculator
- Mortgage comparison-15 years vs. 30 years- calculator