It is everyone’s lifelong dream to build a home for themselves and their family. It is tiresome to live out of rental apartments and move from one place to another when the contract gets over. Today, mortgages have made owning a house easy and accessible.
Mortgages can be of two types — one that can be used to establish the infrastructure of a business and the other which can be used to acquire property for residential purposes. In both scenarios, the bearer of the loan promises to submit papers of ownership to the financial body, in most cases the bank, until the net loan amount along with pre-decided interest has been repaid. After all the payments have been settled, the ownership rights are transferred from the banks to the borrower.
Types of mortgages So, what are the types of mortgages available? One way in which mortgages are segregated is as per the interest rate charged. Under fixed rate mortgages, the bearer of the loan is liable to pay the same rate of interest through the lifetime of the mortgage. The total amount that is mostly paid on a monthly basis includes the principal amount with the agreed upon interest. Most often, this amount remains the same through the entire tenure of the loan. The minimum and maximum tenure with fixed-rate mortgages are 15 and 30 years. Even if the interest rate rises in the market, the rate applied for the mortgage remains the same. But if the rate falls rapidly, the bearer of the loan may lose out on a lower rate of interest from that point of time.
ARM or adjustable rate mortgage is a mortgage in which the interest rate is fixed for an initial period of payment. After that, the rate fluctuates according to the market. The advantage of this kind of mortgage is that the initial rate offered by the financial institutions is often lower than the market rate. This gives the borrower a jumpstart during the initial term of repayment. After the initial phase, unlike fixed rate mortgage, if the rate of interest increases in the market, the rate for the mortgage would increase, and it will decrease if the market rate decreases.
Mortgage calculators, which are now available on most company and investment websites, allow an interested buyer to determine the amount of mortgage they can afford and what is the best sum for which they can get approval. These calculators take into account the borrower’s income and available assets.
Government efforts Mortgage papers are treated as commercial papers in the country and can be allotted to or given to any holder. The government, for the longest time, has encouraged the development of infrastructure and home ownership, in the light of which they have promoted various plans in the sector of mortgages.
The Government National Mortgage Association, also known as Ginnie Mae, and the Federal Home Loan Mortgage Association, also known as Freddie Mae, are some instances of the efforts made by the government to encourage home ownership. Loans provided with the help of these bodies are termed as ‘textbook secure’ and are known to be available at lesser interest rates than other forms of mortgages.
