Things To Know About Mortgage And Arm
Mortgage is generally availed to own a house by most people
. Mortgage may also mean a home loan. A person may not have enough money to own a house by paying the total cost of the house up-front to the seller. The buyer may have the capacity to pay that amount over a period of time. In such an instance, a lender, usually a bank or a finance institution would pay the seller the differential amount of the total cost of which the buyer would have made a small down payment for. The lender then would charge an interest and fees for the amount advanced as loan, which is also called the principal. The buyer would then have to make regular payments towards the interest, principal and fees if any, for the length of time for which the loan might be taken. It might hence be necessary for the buyer/borrower to first find out the different types of mortgages available.
Mortgage may be differentiated on the type of interest charged fixed and adjustable, and on the time taken to pay up the complete loan and/or the type of interest paid on the loan. For example a 30 year fixed mortgage would mean that the rate at which the interest would be charged on the principal would not change under any circumstances until the end of 30 years. A 3/15 year ARM would mean that the interest charged for the first three years would be fixed and thereafter it would be adjusted as per the market cues. When an ARM (adjustable rate mortgage) might have been availed, it would be advisable to note the index and margin. The index, usually the LIBOR, may be assumed to be the base rate of interest currently in the market and the margin would be the additional rate of interest which the lender would charge. So in an ARM, the interest value arrived at would be the addition of these two.
In case of
home equity mortgage fixed and ARM types of interest would also be applicable. In this type of mortgage, the equity, otherwise known as the difference in the current market value of the property and the outstanding principal on the mortgage, may be used to get an additional loan. If the property value is currently $200,000 and the outstanding principal is $100,000, then the home equity would be $100,000. The home equity mortgage may be availed for home improvements, to pay off the original mortgage or for childrens college fees. Home equity may not be en-cashed though it may be tapped and used as collateral. The home equity may be used to get a home equity mortgage loan or a home equity line of credit (HELOC).
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home equity mortgage loan may traditionally have been known as second mortgage. Home equity loans may also be termed as secured debts with low interest rates that allow homeowners to convert equity into cash. Often, a home equity loan might be the lowest-interest loan available to homeowners. It would be a secured loan as the home would be used as collateral. In other words it would mean that if the borrower is not able to repay the loan, then the lender would use the home as collateral and might sell it to recoup losses. A home equity mortgage loan may be taken out when in need of large amount of money. In many cases, when the first mortgage is of ARM and the rate of interest is about to adjust, people might prefer to take out a home equity mortgage loan and try to pay off the principal in the first mortgage. In case of requiring relatively lower amount of money, a home equity line of credit may be availed. A HELOC may be considered as an open credit where the equity built into the home may be used in full or in part. The credit availed would be a revolving credit and the usage would be similar to that of a credit card. It would be advisable to shop around and compare the rates and terms offered by various lenders before availing a home equity mortgage or a HELOC.
by: Ask Bill
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