What is Mortgage And it’s types

What is Mortgage And it’s types

What is a mortgage?


The mortgage is a type of loan offered by a bank (lender) to purchase any tangible assets ( house, land or Property) or any type of real estate. The borrowed sum should be paid periodically (installment) in the form of principal and interest until the end of amortization period. The Amortization period is the length of time in which the loan should be repaid. In some specific mortgage loans there won’t be any amortization period as the balance amount should be repaid as whole in a certain year end.  If the failure of the loan occurs the property will be secured by the means of Collateral (the asset which is pledged as the security for the loan).


Types of Interest in mortgage loan:

The mortgage is provided only after a sum of down payment is paid to the bank (lender) which is usually 20% of the property rate but also variable depending on the bank’s policies. The remaining amount will be provided as mortgage which is to be repaid as installments until the amortization period. There are two types of interest in which the borrower can choos one from. The first one is the fixed interest rate in which the interest is fixed until the end of the mortgage even though the rate fluctuates. The second one is the variable or floating rate in which the interest will be fluctuated until the end of the mortgage. The fixed interest rate is considered as the safest but the cost is higher than the variable interest rate.


Advantages of mortgage loans:

The best advantage of a mortgage loan is that the property will be completely owned by the borrower after the repayment of loan is done which is profitable than paying rent to a landlord. The other advantage is the price of the property would go high in the period of     

Amortization. This will help the borrower by making profit of selling the property and repaying the balance mortgage sum along with the higher return than the down payment which is paid in the beginning.   


Types of Mortgage:

  • Fixed-Rate Mortgages
  • Adjustable-Rate Mortgage (ARM)
  • Interest-Only Loans
  • Reverse Mortgages

There are different forms of mortage . The most common types are fixed rate mortgages with a period of  30 years and 15years. Some mortgage terms are as five years, while others will also extent upto 40 years or longer. The repayment of mortgage for larger period will be of lower pricipal, but it also increases the total amount of interest that the borrower pays over the life of the loan.

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