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What do you mean by Mortgage Loans?


Homebuyers have to plan on different aspects before they can dive into this sector. The major emphasis lies on the selection of the right bank or creditor to approve their home loans/ mortgage loan. When we talk about mortgage loans, we are actually referring to loans secured by a homebuyer while venturing into the real estate sector.
There are 3 different types of mortgage loans:

  1. Fixed interest mortgage:  When you pursue home loans from a bank, you are usually given the choice of a fixed-rate home loan. Within this segment you pay a fixed rate of interest throughout your loan period. The payment you make will remain equal throughout this period. The duration for a fixed rate home loans may vary between 10, 15 or 20 years. The longer the duration, the lower the rate of interest payable.
  2. Adjustable-rate mortgage: Also known as ARM. The rate of interest in this type of mortgage loan varies each year. The ARMs can be easily modified into different variations. While dealing with ARMs, you can also ask for hybrid ARM which gives you the flexibility of both fixed rate loans as well as adjustable rate loans. Talking about hybrid ARMs, there is a fixed rate duration ranging between 3, 5, or 10 years. Post that the loan interest is automatically metamorphosed in to an adjustable rate for the remaining duration.Certain jargons used in the context of adjustable rate mortgages are:
  • Index: It is used in reference to the measure of the cost of money.
  • Margin: Margin is added to the index to ascertain the interest rate.
  • Cap: The limit, to which an interest rate could rise to, is referred to as the ‘cap’.  So if you are given an interest rate to adhere to initially, you can expect it to rise higher than the initial rate than the subsequent interest rates.

Interest-only loan:  This is one of the most preferred modes of interest payment by the buyers’. In this segment, you can choose to pay only the interest’ for the first few years while repaying your loan. Thus, they provide you with an adjustable rate loan option.
So you can opt to pay the principal amount at a later period of the loan duration.

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