| With the real estate prices sky rocketing, mortgage | | | | Since the interest rate remains fixed, you are saved |
| loans are a boon when it comes to purchasing your | | | | from paying higher rates as per market fluctuations. At |
| dream home. You can opt for a mortgage loan as a | | | | the same time you might loose the opportunity of |
| first time home buyer, or to move up, or to refinance | | | | borrowing at lower rates if market rates fall. If the fall |
| an old mortgage, or to access the equity blocked in | | | | in interest rate is 2 points or more, and you plan to |
| the house. Whatever may be the reason, it is | | | | reside in the same house for at least 18 months more, |
| important to have a basic knowledge about mortgage | | | | you can opt for mortgage refinancing. |
| loans and its types. | | | | 2.Adjustable Rate Mortgage Loans: Also called floating |
| Mortgage loan refers to a loan that is secured by a | | | | rate or variable rate mortgage, these loans are popular |
| mortgage on real property. Since these loans are | | | | because of the lower interest rates at the beginning. |
| secured, the value of the property reduces the risk | | | | Adjustable rates are a little easier to obtain since |
| factor involved. Thus mortgage loans may be available | | | | some risk is transferred from the lender to borrower. |
| at lower interest rates as compared to other types of | | | | Also lower interest rates may qualify the borrower for |
| borrowing. | | | | a larger loan amount. |
| Mortgage loans are structured as long-term loans and | | | | In Floating rate mortgage loans interest rate is generally |
| the periodic payments for them are calculated | | | | fixed for a period of time, after which it periodically |
| according to time value of money. The payment is | | | | adjusts to certain market indices. The most common |
| generally through Equated Monthly Installments (EMIs) | | | | market indices used are Prime Rate, London Interbank |
| paid over the term of the loan. Over the period, the | | | | Offered Rate (LIBOR) and Treasury Index (T-bill). |
| principal amount borrowed, would be slowly paid off | | | | There is a cap on the margin that restricts the lender |
| through amortization. | | | | from charging interest rates higher than a certain point. |
| It is very important to choose the right type of | | | | This safeguards the interest of the borrower to a |
| mortgage loan, like it is important to choose the right | | | | certain extent. |
| lender. Doing a little bit of homework will help you | | | | If you want to borrow money for your business |
| understand what the loan officer speaks, who most of | | | | purposes; you can opt for commercial mortgage loan. |
| the time otherwise seems to be speaking in an alien | | | | Commercial mortgage is similar to a residential |
| language. | | | | mortgage, except that the collateral security given will |
| There are two basic types of amortized mortgage | | | | be a commercial building or other business property |
| loans viz. | | | | and not a residential property. |
| 1.Fixed Rate Mortgage Loans: In fixed rate mortgages, | | | | All types of mortgage loans are generally |
| the interest rate remains fixed for the entire term of | | | | non-recourse. This means that in case of default in |
| loan. Thus they are more predictable than other types | | | | payment, the lender can only seize the collateral |
| of mortgage loans. Fixed rate loans are generally up to | | | | security to recover the loan amount. Even if the |
| 30, 20, 15 and 10 years. The longer the term of loan, | | | | collateral is insufficient to reimburse the loan in full, the |
| larger is the amount of interest paid than the principle, | | | | lender has no further claim against the borrower. |
| this means larger tax deductions. | | | | |