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Types of Mortgage Products

Mortgage – A loan using your home as collateral. In some states the term mortgage is also used to describe the document you sign (to grant the lender a lien on your home). It also may be used to indicate the amount of money you borrow, with interest, to purchase your house. The amount of your mortgage often is the purchase price of the home minus your down payment.

Many types of mortgage products are available. Take your time to learn about your options—and then choose the one that fits your finances and your lifestyle.

Choose from:

Assumable Mortgage – A mortgage loan that can be taken over (assumed) by the buyer when a home is sold. An assumption of a mortgage is a transaction in which the buyer of real property takes over the seller’s existing mortgage; the seller remains liable unless released by the lender from the obligation. If the mortgage contains a due-on-sale clause, the loan may not be assumed without the lender’s consent.

Balloon Mortgage – A mortgage with monthly payments often based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a specific period of time (usually 5 or 7 years). The mortgage may contain an option to “reset” the interest rate to the current market rate and to extend the due date if certain conditions are met. Note: The balloon payment is a final lump sum payment that is due, often at the maturity date of a balloon mortgage.

Fixed-Period Adjustable-Rate Mortgage – An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term. Also known as a “hybrid loan.”

Fixed-Rate Mortgage – A mortgage with an interest rate that does not change during the entire term of the loan.

Government Mortgage – A mortgage loan that is insured or guaranteed by a federal government entity such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).

Growing-Equity Mortgage (GEM) – A fixed-rate mortgage in which the monthly payments increase according to an agreed-upon schedule, with the extra funds applied to reduce the loan balance and loan term.

Reverse Mortgage – Originally called a  Home Equity Conversion Mortgage (HECM), this special type of mortgage, developed and insured by the Federal Housing Administration (FHA), enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. 

Subprime Loan – A loan given to a borrower with credit problems or other risk factors than is unable to qualify for a ‘prime’ loan. In return for a higher risk, the lender will charge higher interest and fees for a subprime loan.

Watch out for:

Predatory Lending – Abusive loan products, practices, and terms that create unfair terms for the borrower. Predatory loans often include very high rates and fees that are not justified by the borrower's risk. These loans often use deceptive or fraudulent practices such as loan flipping or negative amortization (when the monthly payment is not enough to cover the interest).

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