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The Basics

When searching for a mortgage loan, there is basic information that every consumer should know.

Lien Position

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.

Loan Amount

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).

Interest Rate

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.

Loan Purposes

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:

A purchase money loan is a mortgage loan that is used to purchase a home. While most purchase money loans are 1st mortgages, it is sometimes beneficial to utilize both a 1st mortgage and a 2nd mortgage.

A debt consolidation loan is used to consolidate debt, usually non-mortgage debt. A debt consolidation loan could be a junior mortgage or a 1st mortgage (see cash out refinance loan).

A home improvement loan is, as the name implies, a loan used for making improvements to your home. Like a debt consolidation loan, a home improvement loan could be a  junior mortgage or a 1st mortgage. (see cash out refinance loan).

A refinance loan is any loan that pays off all or some of the existing mortgage loans on your property. The purpose of a refinance loan is generally to lower the monthly mortgage payments, or change the term. This is called a rate/term refinance loan. In most cases, a refinance loan is a 1st mortgage, although there may be situations where you just refinance a junior lien, in which case the refinance loan is a junior mortgage.

A cash-out refinance loan is a loan that pays off existing mortgage loans on your property and where you also receive cash at the closing table. This cash can be used for any purpose, such as debt consolidation or home improvements. Sometimes you can obtain a cash out refinance loan that results in lowering your monthly payments.


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