Published : 13 years ago, on 19/05/2012

In a residential loan, a residence buyer’s house is kept as insurance by the bank. The bank can claim the house till the home buyer completely repays the loan with interest, back to the bank. In the case of mortgagor’s failure to keep up mortgage payments, the bank may expel the home’s residents and sell it, consuming the earnings from the sale to clear the mortgage debt.

Mortgage Tips

There are a few types of Mortgages and here we will discuss the most common ones

Fixed-Rate Mortgage:
The interest rate of the loan remains consistent till the loans is paid off. In this type of loan the scheduled principal and interest fee don’t change from the initial mortgage payment to the last. Generally they come with a term 15 or 30 years. Depending on the market, if interest rates increase, the borrower’s payment does not alter. If market interest rates drop notably, by refinancing the mortgage the borrower can refinance to a lower rate. This fixed mortgage is also known as a “traditional” mortgage.

Things To Consider Before Taking it:
It is observed that there is much less foreclosure among the borrowers of this type of loan. But, it doesn’t mean that taking Fixed-Rate Mortgage is always a good idea. Taking a long-term loan means making payments for a longer period of time as well as substantial interest.

Adjustable-Rate Mortgage (ARM):
The interest percentage of ARM tends to remain constant for an opening term, but if the market interest rates fluctuate, the interest rate will also fluctuate. The opening interest rate which is also called the ‘teaser rate’ is generally below-market rate that makes a mortgage appear more affordable than it actually is. In ARM the payment amount for each month fluctuates.

Things To Consider Before Taking It:
In case the interest rates rise in the future, then the loan taker possibly will not be able to pay for the higher payments per month which can result in foreclosure. However, sometimes the interest rates decrease, creating an ARM less costly. The unpredictability makes living by a set budget difficult.