A temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt. It is a contract or deed specifying the terms of a mortgage.

Debt instrument giving conditional ownership of an asset, secured by the asset being financed. The borrower gives the lender a mortgage in exchange for the right to use the property while the mortgage is in effect, and agrees to make regular payments of principal and interest. The mortgage lien is the lender’s security interest and is recorded in title documents in public land records. The lien is removed when the debt is paid in full. A mortgage normally involves real estate and is a long-term debt, normally 25 to 30 years, but can be written for much shorter periods.

Types of Mortgage Loans

Although you may see many different types advertised, they all belong to just two families: those mortgages that carry fixed interest rates, and those whose rates change during the course of the loan on a periodic schedule mutually agreed upon by you and your lender.

* Fixed Rate MortgagesThe major advantage of fixed rate mortgages is that they present predictable housing costs for the life of the loan. Some fixed rate mortgages you will probably hear about are: 1. 30-Year Fixed Rate Mortgages
2. 15-year Fixed Rate Mortgages
3. Biweekly Mortgages
4. “Convertible” Mortgages

* Mortgages That Change Some newer mortgages afford homebuyers some the best qualities of the fixed rate and adjustable rate mortgages. One new type of loan, often called a Two-Step, Super Seven, or Premier Mortgage, gives homeowners the predictability of a fixed rate and adjustable rate mortgage for a certain time, most often seven or 10 years, and then the interest rate is adjusted to fit market conditions at that time. The main advantage associated with this type of loan is that homebuyers often get a slightly lower than market rate to begin with. The main disadvantage is that they may see their interest rate go up by as much as six percentage points at the end of the seven-year period

* Adjustable Rate Mortgages Adjustable Rate Mortgages (ARMs) have become on of the most popular and effective tools for helping some prospective homebuyers achieve their dream of homeownership. Each ARM has four basic components:

1. Initial interest rate, which is typically one to three percentage points lower than that of most fixed rate mortgages. Lower interest rates also make ARMs somewhat easier to qualify for. The initial interest rate is tied to certain economic indicators that dictate in part what the monthly payments will be.
2. Adjustment interval, at the time between changes in the interest rate and/or monthly payment will be.
3. Index, against which lenders measure the difference between what they are making on their investment in the mortgage and what they could be making on other types of investments.
4. Margin or the additional amount the lender adds to the index to establish the adjusted interest rate on an ARM. The margin is usually 1.5 percent to 2.5 percent.

* FHA/VA Mortgages The Federal Housing Administration (FHA) and the Veterans Administration (VA) offer a wide range of mortgage choices that may appeal to you. These include 30 and 15 year fixed- rate mortgages, as well as ARMs.

* Creative Financing or Seller-Assisted Mortgages This type of financing became popular when interest rates went to very high levels in the early 1980s. Seller-assisted creative financing usually means the seller of the home helps with the financing by underwriting all or part of the loan.The advantage of this type of arrangement is that the mortgage usually carries a lower interest rate with lower monthly payments.

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