Here in this article ,we will discuss about the mortgage loans and their types and intrest rates.
What are a mortgage loans ?
A mortgage is a type of loan provide by a bank that enables an individual to purchase a property.
The most exciting point of mortage is that it is possible to take loan to cover the entire cost of the property.
Generally, it is very convenient in mortgage to secure a loan for about 80% of the home’s value.
The property that we purchased acts as a collateral on the loan amount.
What are the different types of mortgages?
There are two types of mortgages available in Market. Fixed rate and adjustable rates.
Difference between Fixed rate mortgage loans and adjustable mortgage loans.
Fixed rate mortgages.
They provide money to the borrowers at a fixed interest rates for a fixed tenure for 15,20 or 30 years.
Itmeans the longer time the borrower take to pay the loan ,the more amount he has to pay as an interest.
The main advantage of the fixed mortgage is that the borrower can estimate the monthly amount he has to pay and plan accordingly.
Adjustable rate mortgages.
As the name suggests ,these mortgages come with a interest rate that can fluctuate according to the market situations.
These fluctuations can lead to a change in the monthly amount that you have to pay.
As it is more difficult for a borrower to guess interest rate and monthly payments ,they are less preferred.
Inspite of this ,they offer a lower starting interest rate which gave them some edge over fixed rate mortgages.
How these mortgages payments are made?
Mortgage payments usually occur on a monthly basis.
It contains principle amount, interest, taxes and insurance.
Which is better, fixed rate mortgages or adjustable rate mortgages?
Both have their pros and cons.
The primary risk at FRM is that the interest rate is increasing over the life of the loan which make such a huge amount that it is impossible for a borrower to repay at some point of time.
While ARM provides adjustable and low interest rates which make them convenient sometimes.
Written By Deepak Kumar ( Senior Analyst)
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