What if you want to buy something, but don’t have enough money? You can ask a loan from a bank.
OK, after bank review, the bank thinks you currently are not able to pay off the debts. What can you do next? You just give up?
NO. The bank will advise you, how about a mortgage?
Guess you may be familiar with the word, mortgage. A mortgage is a debt instrument. The collateral of a specific property, such as a house or a car, is like a safeguard for borrowed money. If the borrower can’t pay the debt on time, the mortgage property will be transferred to the lender according to the contract.
Both individuals and businesses can have a mortgage. Mortgages are also known as “liens against property” or “claims on property.”
Nowadays, people have more choices. Except major banks who can offer a mortgage loan, other financial institutions also share the lender market. For example, private businesses like Quicken Loans, SoFi, United Wholesale Mortgage and so on. You should be careful when choose a mortgage institution.
Mortgages come in many forms. The most popular mortgages are a 30-year fixed and a 15-year fixed. Some mortgages can be as short as five years; some can be 40 years or longer. Stretching payments over more years reduces the monthly payment but increases the amount of interest to pay.
You can choose the time period of a mortgage. The most popular mortgages are 30-year fixed and a 15-year foxed. You can have shorter one like 5 years or a longer one, 40 years. It all depends.
A fixed-rate mortgage means that the interest rate of the loan stays the same. You monthly payment will not change first the first day to the last. It is also called a traditional mortgage.
There’s another type of mortgage called adjustable-rate mortgage (ARM), the interest rate goes up and down after an initial term according to market interest rate. During the initial time, the interest rate is usually lower than the market interest rate, making it easier for borrowers to afford.
Other types are less common, such as interest-only mortgages, payment-option ARMs and reverse mortgages.