Mortgages Explained

Individuals and companies use mortgages for major real estate purchases without ever paying the full purchase price upfront. Over time, the mortgagor pays off the loan, plus accrued interest, plus a percentage of the outstanding mortgage value. Nowadays, a growing portion of the mortgage market features non-traditional mortgages. In addition to conventional mortgages, borrowers may also obtain “sub-prime” mortgages from specialty mortgage providers.

Mortgages

Balloon mortgages are loans that never get paid off. Instead, they become a debt owed to the mortgage company for a set number of months during which you make payments. If you extend the term, you will have to pay off the balloon amount before moving on to another home loan. Typically, balloon mortgages come with adjustable interest rates (ARM) that make them particularly risky to borrowers who have a shorter payment term. To make matters worse, most homeowners who carry these types of mortgages eventually have to sell their homes, due to inability to keep up with balloon payments.

Most escrow accounts contain cash that is held by the mortgagee until the property taxes have been paid. These properties can be used for almost any purpose, including buying another home. However, not all lenders offer escrow accounts. In order to qualify for a good escrow account from most mortgagees, borrowers must have a sufficient down payment, good credit history, and adequate homeowner’s insurance.

Unsecured mortgages are generally for very short-term projects such as vacation homes or smaller real estate property. Because there is no need for collateral, lenders prefer to issue unsecured loans. For example, a bank would usually not issue a mortgage to a car dealer unless the dealer was willing to guarantee the payment. Homeowners can take out either a line of credit or a mortgage to finance their real estate projects. These loans are collateralized by real property, which can be either owner occupied or freehold. While a borrower can choose to get one of these loans in either type, it often benefits the borrower to obtain a secured real estate loan.

Secured Mortgages come in two forms: closed and open. A closed mortgage allows a borrower to borrow only the amount of money needed to buy their new property. Open mortgages allow a borrower to borrow any amount that the lender sees fit, as long as it is not exceeding the value of their new property. These mortgages require monthly payments to be made to cover the interest on the loan. With a secured mortgage, the interest on the loan is protected from creditors if the value of the house falls.

Construction loans are mortgage-based on a construction project. These loans usually have fixed interest rates but can be altered based on a number of factors including the economy and the cost of materials. Mortgages are available to almost everyone who applies. Some lenders do not lend money on mortgages; instead, they may refer borrowers to construction loan brokers.