Mortgage Basics

Mortgage is a term which is specific to the real estate industry and has many variations.Mortgage loans are also described by the length of time for repayment, such as 15 or 30 years, whether the interest rate is fixed or adjustable. Before going for mortgage loans it is always advisable to compare different vendor rates, policies and make sure there are no hidden costs.

Mortgage – “a legal document that pledges a property to the lender/creditor as a security for the payment of debt” In other words a mortgage is a security, which you as a loan taker give to your creditor, so in case you fail to pay the loan in the stipulated term, the creditor takes control of the security, which may be in the form of your home/property.

home loans and mortgage loans

Types of Mortgages

Fixed Rate Mortgages– as the term suggests has a fixed rate of interest and fixed monthly payment. The rate of interest is set at or before the time of the loan procurement.

Adjustable Rate Mortgages – Adjustable Rate Mortgage has a fixed rate of interest and fixed monthly payment which is likely to change afterwards. Moreover, if interest rates remain steady or move lower, your ARM could be less expensive over a long period than a fixed-rate mortgage.

Balloon Mortgages – A balloon mortgage has a fixed rate of interest and fixed monthly payment only for a specific/predetermined period of time. After the time gets over, the entire due amount has to be paid as a lump sum amount.

Basics of Mortgage

The home and land is used for collateral on the loan, which means that if you don’t make your payments, the lender can take the home away to cover your missed payments. The loan principal is the amount you actually borrow to purchase the home. Interest is the amount the bank charges you to use their money; it is a percentage based. Principal and interest together comprise most of your payment. Banks decide to lend you after estimating your income, your available cash, your debt and your credit history. Firstly, they check to see how much of your income would go toward the mortgage payment. This is called as front-end ratio. Secondly, they check how much of your gross income is required to pay all of your debts required. This is called as back-end ratio.

Some lenders offer bi-weekly mortgages, which call for 25 payments a year.

Consider your own budget and lifestyle, and make sure you don’t end up with high mortgage payment that you can’t put money away for retirement. Never buy a house that costs more than two and a half times your current annual salary.


– A conventional mortgage is one that is not insured or guaranteed by the government. They typically require private mortgage insurance if the down payment is less than 20%.

Federal Housing Administration, which is a part of US Department of Housing & Urban Development., operates several low-down payment insurance programs.