Mortgage
Key Highlights
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A mortgage is a loan granted by a lender to a borrower to finance the purchase of a property.
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There are three main types of mortgages available to potential homeowners: Fixed-Rate Mortgages, Adjustable-Rate Mortgages, and Reverse Mortgages.
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Mortgages require more extensive documentation and are secured by property (e.g., car, house).
What is Mortgage?
A mortgage is a loan granted by a lender to a borrower to finance the purchase of a property. Mortgage loans are often used to cover the cost of buying large-ticket items such as cars or real estate. Mortgages come with an interest rate that can vary depending on the borrower's credit score and financial standing.
Types of Mortages
The list of mortgage types available to the home-buyers is not that large, yet, there are alternatives to choose from:
1. Fixed-Rate Mortgages: Provide predictability with the same interest rate throughout the period of the loan that results in regular monthly payment for the borrower.
2. Adjustable-Rate Mortgages: When a borrower selects an ARM, his/her monthly payments can fluctuate since the interest rate changes in accordance with the market condition.
3. Reverse Mortgages: A reserve of equity is a method employed by traditionalist homeowners to tap the source of their home without actually selling it. This aids in one's ability to enjoy their retirement as well. These are mortgages which are generally designed for older people who have very low living income or have encountered situations, which led to these retirement savings losing a big portion.
Mortgage vs loan
| Element | Loan | Mortgage Loan |
|---|---|---|
| Purpose | Typically for short-term needs | Primarily for purchasing property |
| Interest Rates | Loans offer High Interest rate | Interest rate is Low in mortgage loans |
| Paperwork | Involves less paperwork | Requires more extensive documentation |
| Financing Type | Often used as bridge financing | Long-term financing |
| Term Length | Shorter duration | Longer duration |
| Collateral | Generally unsecured | Secured by property (e.g., car, house) |
