Loan and Mortgages
Loans and Mortgages
Loan
Loan 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.
Classification of Loans
Call loan or demand loan - Payable on demand at any time.
Time loan - It has to be paid within a specified time.
Interest only loan - There will be specific repayment schedule and interest rate for a specific amount and will be mature between 1 and 10 year
Different Types of Loans
There are different types of loans products with varying fees, features, and interest rates.
Installment Loan
The 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
A 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.
Secured Loan
The savings or property should be put as collateral to guarantee the repayment, for example, car and home equity loans
Unsecured Loan
Higher interest rates will be issued for these types of loans since it is given based on trust. There is no collateral for unsecured loans
Fixed Rate Loan
It is given when the interest rate and monthly payments are the same for the loan which is issued.
Adjustable Rate Loan
The interest rates for these loans will be varying. It is more flexible and can make additional payments without penalty
Introductory Loan
In
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
This 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.
Mortgage
It 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.
Different Types of Mortgage Plans
Government loans
.Federal Housing Administration (FHA) loans
It
has low down payments and is easier to get FHA loans. It cannot
exceed the statutory limit.
Veteran Affairs (VA) loans
This 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
It
guarantees loans for rural residents with minimal closing costs.
There will be no down payment.
Conventional loans
Conventional 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
The 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)
The 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.
Hybrid loans
It
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.
Balloon payments
The
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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