The Ultimate Mortgage List

This is a list of the types of mortgages out there, and a brief description of each.

Construction

Construction loans are used to finance the building of a new home rather than purchase an existing home. They are usually variable-rate loans that have interest only payments during the construction phase. Draws are scheduled based on the stages of construction to pay the builders.

Many construction loans are construction-to-permanent which means that when construction is complete, the loan is converted to a normal mortgage. This has the advantage of a single loan with one closing.

Interest Only Mortgages

An interest only mortgage loan is one where your mortgage payment only consists of interest alone. Whereas, a traditional mortgage payment consists of principal and interest. When you pay principal and interest some money is applied towards the principal balance of the loan to bring the balance down and the rest is applied towards your interest. With an interest only loan you are not required to pay any extra money to pay down the principal and you are only required to pay the interest portion of your payment. You can always pay extra on an interest only loan and the money in excess of your interest only payment will go directly towards the principal of your loan. These types of loans are not right for everyone, but they can help to produce a more positive cash flow each month.

Adjustable Rate Mortgage

A Adjustable rate mortgage or ARM as it is commonly referred to is a ARM is a a mortgage where the rate can change based on current market conditions. ARMS generally have a lower starting rate then fixed rate mortgages. However this lower rate is only for a short period of time that can range from 1 year up to 10 years. After the initial fixed rate period is over the interest rate will adjust based of the chosen market index if at that time the index is a a low level their may be no rate increase at all but if the index is at a volatile level then a rate increase will affect your mortgage. ARMS are good for borrowers who intend to move in a few years or home owners who know they will refinance before the adjustment period begins.

Fixed Rate Mortgage

Fixed Rate Mortgages are loans where the interest rate remains fixed for the life of the mortgage. The most common variety is the 30 Year Fixed Rate mortgage, widely regarded as the most popular loan for regularly employed persons in America today. Fixed Rate Mortgages have received increased attention lately, due to rising short term adjustable rates. While rates on fixed rate mortgages are generally higher than the rate on an equivalent adjustable rate mortgage, in recent times the gap between the two major types of mortgage types has narrowed. Fixed Rate mortgages are now being offered with many of the more flexible options once available only on ARM loans, such as Interest Only options, balloon payments, and deferred interest. While many home owners previously chose adjustable rate mortgages because they offered multiple payment options, an increasing number of "Option ARM" borrowers are choosing to switch to Fixed Rate Mortgages which have the same Minimum Payment (negative amortization), Interest Only, 30 Year Principal & Interest, and 15 Year Principal & Interest payment options each month.

Second Mortgage
A second mortgage is a subordinate mortgage. This means that there is already a primary mortgage on the property, filed first, which holds priority over the second. Consumers often take out a second mortgage on their property when they are looking to tap into a relatively small percentage of their equity, for purposes such as home improvements, credit card consolidation, or childrens' education. Second mortgages are riskier for a lender, thus the lender will charge a significantly higher interest rate for this subordinate loan.

Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit is a line of credit which is secured against your home. You can use the line of credit to pay for anything you like as you would with a checking account. The interest you pay on a HELOC is 100% tax deductable as well as the interest you pay on any first or second mortgages.

» DISCLAIMER: The information contained in this article on 'The Ultimate Mortgage List' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.