When searching for a mortgage loan, there is basic information that every consumer should know.
There are 2 broad categories of mortgage loans based on the lien position of the loan. These 2 categories are 1st mortgages (also know as 1st lien mortgages) and junior mortgages (also know as subordinate mortgages, subordinate liens, or junior liens). A 2nd mortgage is a junior mortgage.
Most mortgage loans are what are known as closed end loans. That means that the loan is for a fixed amount. However there are also what are know as open-ended loans. That means that the amount of the loan can change. An example of an open-ended loan is a Home Equity Line of Credit (HELOC).
Fixed rate mortgages have a fixed interest rate for the term of the loan. Most fixed rate loans have a fixed payment, although there are fixed rate loans with payments that change, which are know as graduated payment mortgages.
Adjustable Rate Mortgages (also know as variable rate mortgages) are loans where the interest rate and the payment can change. There are a variety of adjustable rate loans.
Most mortgage loans are fully amortizing loans. That means that the payments required on the loan are such that the loan will be paid off at the maturity of the loan. However, there are also mortgage loans with a balloon feature, wherein the unpaid balance on the loan is due and payable at a date prior to the maturity date of the loan.
The payments on most mortgage loans are paid monthly. There are also mortgage loans where the payments are every 2 weeks (bi-weekly loans).
The payment required on most mortgage loans includes both principal and interest. Although not as common, there are some types of loans that require that only interest be paid.
You may have heard terms such as "debt consolidation loan", or "purchase money loan", or "home improvement loan". Many consumers think that these are special types of mortgage loan programs. In fact, these are descriptions of the purpose of the mortgage loan. The following are the most commonly used purposes for mortgage loans:
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