An Overview Of Various Types Of Mortgages

By Author: Todd Moore
Total Articles: 26
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While the economy is in a downturn, the real estate market is still in operation. The interest rates are at an all-time low and housing prices are down. There has never been a better time to take out a mortgage to purchase your first home or to upgrade to a larger property. It is important to be aware of the various types of mortgage products that are open to you, even though some of these are available only to those with excellent credit.

The first step in obtaining a mortgage is getting pre-approval from a lender. This will tell you the amount of money that you would be able to borrow and will therefore give you the price range of houses that you can look at. What many borrowers do not realize is that this is not actual approval of the mortgage. You do not submit a loan application with this process and you do not have to pay any fees for the pre-approval. The rate you receive is effective for up to three months. However, once you do find a home that you want to purchase, you then have to submit a loan application and approval for the mortgage will depend on your income and credit rating.

Once you do have approval ...
... for a mortgage, you can then look through the types of mortgage products that are open to you. These include:

Conventional Mortgage. This is a mortgage in which you make a substantial downpayment so that the amount of money that you borrow is about 75% of the price you agree to pay for the home. Within this category, you can choose a fixed rate mortgage in which the rate of interest is locked in for a period of time. In this way, your mortgage payment remains the same for the term regardless of the changes in the interest rates on the market. In a variable rate mortgage, the amount of interest you pay changes according to market conditions and your payments may be higher in some months than in others.

Open Mortgage. In this type of mortgage, you have the right to repay the mortgage in full at any time during the term without being subject to repayment fees.

Closed Mortgage. Most lenders do charge a fee if you repay your mortgage before the term expires. This is the case in a closed mortgage.

Equity Mortgage. If you have owned your home for a period of time and have paid off a substantial amount of the mortgage, you can take out a loan based on the equity built up in your own over the years through renovations and rising house prices. Lenders will approve a mortgage based on the difference between what you owe on your mortgage and the price of your home on the real estate market.
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