Mortgage Loan Basics
Early 21st Century mortgage loans are much more complicated than they were a few decades ago. Home buyers used to have only a few basic choices: conventional mortgage loans, Federal Housing Administration (FHA) mortgage loans and Veterans Administration (VA) mortgage loans. Not so any more. Now we have adjustable rate mortgage loans, home equity mortgage loans and reverse mortgage loans, to name a few, to go along with the traditional conventional, FHA and VA mortgage loans. Which is the best mortgage loan choice for you.
Conventional mortgage loans carry a fixed interest rate that remains the same over the life of the loan and keeps the amount of your monthly mortgage payment constant. This is still the choice of many mortgage loan applicants because of the security it affords to the monthly budget. The only factor that could change your monthly payment is an increase or decrease in your monthly property tax and insurance escrow. These mortgage loans typically have an amortization period of 30 years but can run anywhere from 10 to 50 years. Adjustable rate mortgage loans carry interest rates that remain fixed for a certain period of time, then regularly fluctuate according to the financial markets. Many homeowners end up refinancing to a fixed rate when their adjustable rate loan is due to reset.
FHA mortgage loans are actually mortgage loans insured by the federal government to minimize risk of default to the lender when a buyer puts down a deposit on a home that is less than 20 percent of the purchase price. The nice thing about these mortgage loans is that they make allowance for past financial mistakes on the part of the borrower. The FHA will impose mortgage limits that are determined by the area in which the borrower wishes to purchase a home.
VA mortgage loans are issued by conventional lenders but guaranteed by the VA in the event of default. The guaranteed amount, which is determined by the amount of your mortgage loan, is referred to as an entitlement and is available only to veterans of U.S. military service. In the event of default, the VA can sue the borrower for the amount of the entitlement paid out to the lender.
Home equity mortgage loans allow a homeowner to borrow against the equity in their current home. These loans are junior in interest to the original purchase money mortgage taken out on the home and are typically sought by borrowers wishing to make their equity work for them for a variety of reasons. One of the beauties of a home equity mortgage loan is that the proceeds can be used to pay down consumer debt or finance home improvements, and the interest deducted at tax time.
Reverse mortgage loans are exactly that: a reversal of the typical mortgage loan arrangement. These loans are available to people over the age of 62 and function as a source of monthly income from the lender. The proceeds are paid out from lender to borrower in monthly increments for as long as the borrower owns the home.