is defined as the sum of money, which is borrowed at a particular
interest rate. It may be acknowledged by a bond or a promissory
note. There are other types of loans such as mortgages, bonds
and lines of credit. Mortgage is used to purchase property or
housing. If the borrower does not pay the loan, the bank has the
right to repossess the property and sell it to get their money
is a type of debt. The borrower receives as an amt of money from
the lender and this money will be paid back in regular installments
together with the interest to the lender. If the granting of loans
is abused then it is said to be predatory lending.
loan or demand loan - Payable on demand at any time.
loan - It has to be paid within a specified time.
only loan - There will be specific repayment schedule
and interest rate for a specific amount and will be mature between
1 and 10 year
Types of Loans
are different types of loans products with varying fees, features,
and interest rates.
full amount will be borrowed at one time and will be repaid in
installments on a regular basis over a certain time period.
Line of Credit
check is be written for the amount to be borrowed, up to a limit
set by lender .Thereafter the interest for the amount should be
paid and this could be borrowed again.
savings or property should be put as collateral to guarantee the
repayment, for example, car and home equity loans
interest rates will be issued for these types of loans since it
is given based on trust. There is no collateral for unsecured
Fixed Rate Loan
is given when the interest rate and monthly payments are the same
for the loan which is issued.
Adjustable Rate Loan
interest rates for these loans will be varying. It is more flexible
and can make additional payments without penalty
this case the interest rate is low. The rates can be fixed or
varying. The principal amount can be reduced if payments are made
at introductory stage.
Low doc loan
is given for investors or self employed people. They need not
submit any tax returns or payment reports. However it will be
having higher interest rates.
is a tool for shielding lender by giving him an interest in asset
of the borrower. Real estate transactions are done through mortgage.
The person who borrows the money and gives mortgage is the mortgagor
and the one who is paying the money is mortgagee. The mortgage
must be executed based on certain formalities from the state government.
It must include details of real estate and should be signed by
all owners. In order to secure the repayment of debt, the buyer
transfers a legal document and this is said to be mortgage note.
After the settlement of balance due the mortgage is termed as
discharged and is recorded in the register. The mortgage note
comprises of amount of the debt, amount due date, rate of interest,
monthly payments etc. If the mortgagor does not pay the debt then
the mortgagee could ask for a court order sale of the property
and the debt is paid out of the proceeds.
Types of Mortgage Plans
.Federal Housing Administration (FHA) loans
has low down payments and is easier to get FHA loans. It cannot
exceed the statutory limit.
Veteran Affairs (VA) loans
loan is provided for veterans and service person to obtain home
loans with fewer down payments. It is guaranteed by U.S. dept
of Veterans Affairs. Initially they determine the person's ability
and then only will they issue the certificate of eligibility,
which can be used in applying for a VA loan.
Rural housing service (RHS) loans
guarantees loans for rural residents with minimal closing costs.
There will be no down payment.
loans can be conforming or non- conforming. Conforming loans have
certain terms and conditions. These guidelines will be set by
Fannie Mae and Freddie Mac. It includes maximum loan amount, down
payment, borrower credit and income requirements... these are
the classifications if Conventional loans.
Fixed rate mortgages
interest rate will be the same for the life of loan. It is easier
to plan and budget for. It is common in 30 and 15 year terms.
Adjustable rate mortgages (ARM)
interest rate and monthly payments are varying in these types
of loans. This is because the interest rate is based on an index,
which can either rise or fall. However, there is a limit for this
rise and it will be not more than 2 percent a year.
has features of both fixed and adjustable rate mortgages. Initially
it will start with a
fixed rate for certain amt and later will change to adjustable
rate. The interest rate will be lower in the initial state.
final payment for this loan will be a huge amount. These payments
will be based on a 30 year basis. This is beneficial only to homeowners
who stay for a short period of time.
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