Types of Instant Home Loans

There are many types of mortgages (standard term for home loans) used in the US, but several factors broadly define the characteristics of the all home mortgages. The regulated home loan market may be subject to local regulation and legal requirements.

Characteristics of Home Loans:

* Interest: interest may be fixed for the life of the loan or variable. Variable interest home loan options result in interest payment amounts that can change at certain pre-defined periods (usually semi-annually); the interest rate can also, of course, be higher or lower.

* Term: mortgage loans generally have a maximum term, that is, the number of years after which an home loan will be repaid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization. Recently home owners have gotten into trouble with negative amortization home loans.

* Payment amount and frequency: the amount paid each payment period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.

* Prepayment: some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.

The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM) (also known as a floating rate or variable rate mortgage). Fixed rate mortgages are typically considered traditional and are most common among buyers. Combinations of fixed and floating rate are also common, whereby a mortgage loan will have a fixed rate for some period, and vary after the end of that period.

In a fixed rate mortgage, the interest rate, and periodic payment, remains fixed for the life of the loan. In the U.S., the term is usually up to 30 years (15 and 30 being the most common), although recently 40 year terms have become available. For a fixed rate mortgage, payments for principal and interest should not change over the life of the loan, although extra costs (such as property taxes and insurance) can change (frequently revised upwards).

In an adjustable rate mortgage, the interest rate is generally fixed for a period of time, after which it will periodically (for example, annually or monthly) adjust up or down to some market index. Common indices in the U.S. include the Prime rate, the London Interbank Offered Rate (LIBOR), and the Treasury Index ("T-Bill"). Home loan borrowers can select the mortgage loan that’s best when interest rates are low and get it adjusted throughout the loan term.

Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions.

Additionally, lenders in many markets rely on credit reports and credit scores derived from them. The higher the score, the more creditworthy the borrower is assumed to be. Favorable interest rates are offered to buyers with high scores. Lower scores indicate higher risk for the lender, and higher rates will generally be charged to reflect the (expected) higher default rates.

A partial amortization or balloon loan is one where the amount of monthly payments due are calculated (amortized) over a certain term, but the outstanding principal balance is due at some point short of that term. This payment is sometimes referred to as a "balloon payment" or bullet payment. The interest rate for a balloon loan can be either fixed or floating. The most common way of describing a balloon loan uses the terminology X due in Y, where X is the number of years over which the loan is amortized, and Y is the year in which the principal balance is due.

Other loan types:

* Assumed mortgage

* Balloon mortgage

* Blanket loan

* Bridge loan

* Budget loan

* Buydown mortgage

* Commercial Loan

* Endowment mortgage

* Equity loan

* Flexible mortgage

* Foreign National mortgage

* Graduated payment mortgage loan

* Hard money loan

* Jumbo mortgages

* Offset mortgage

* Package loan

* Participation mortgage

* Reverse mortgage

* Repayment mortgage

* Seasoned mortgage

* Term loan or Interest-only loan

* Wraparound mortgage

* Negative amortization loan

* Non-conforming mortgage