7 Different Types of Mortgage Loan Programs

Mortgage loan programs are of different types. They are the assumed mortgage, balloon mortgage, blanket loan, bridge loan, buydown mortgage, equity mortgage, and reverse mortgage.

Homebuyers or builders can obtain a mortgage loan from a bank or any financial institutions. The size of the loan, its maturity, the interest rate, the method of paying and other characteristics can vary considerably. In a lot of countries, it is quite common for home purchases to be funded by a mortgage loan. One of the main reasons is that few individuals have enough savings or liquid funds to purchase property outright. There are many types of mortgages perth used worldwide but several factors are relative to local regulation and legal requirements.

Assumed Mortgage

This type of Mortgage occurs when a buyer takes on all the obligations of the mortgage. Many buyers prefer this type of mortgage because of its low interest rate. This is frequently used when buyers can’t get an affordable interest rate for what the seller has offered.

Balloon Mortgage

This type of mortgage does not fully amortize over the term of the note and has an expanded balance during maturity. Due to the large size of the final payment, it would be called a “balloon payment.” Balloon payment mortgages either have a fixed or floating interest rate. In circumstances when borrowers don’t have the resources to make the balloon payment during the end of the loan term, a “two-step” mortgage plan may be used. This involves resetting the mortgage using current market rates and a fully-amortized payment schedule. The “two-step” option isn’t necessarily automatic and may only be available if the borrower is still the owner or occupant and has no history of 30-day-late payments or other liens against the property whatsoever. Balloon payments without reset options will require the borrower to sell the property or refinance the loan by the end of the term. This mortgage type may mean that there is a refinancing risk.

Blanket Loan

This type of mortgage loan is popular with builders and developers who buy large tracts of land and subdivide them into individual parcels to be gradually sold one at a time while paying a portion of the mortgage for each unit sold. This way, the mortgage remains intact until the entire balance is retired when all of the parcels are successfully distributed to their new owners.

Bridge Loan

A bridge loan usually involves financing to generate money to pay back an earlier loan. They typically have higher interest rates, involve higher fees and other costs are amortized over a shorter period in order to compensate for the additional risk of the loan. Some lenders may require cross-collateralization and a lower loan-to-value ratio. These loans take less time to arrange and may involve very little documentation.

Buydown Mortgage

Through this mortgage type, a buyer may obtain a lower interest rate for at least the first five years of the mortgage. The seller usually provides payments to the mortgage lending institution which allows the buyer’s lowered monthly interest rate and monthly payment. In most cases, the buydown may be a direct arrangement between the buyer and the lender while not involving the seller.

Equity Mortgage

These loans are second in position and junior to the existing first mortgage. The borrowers using this type may take out equity loans to receive cash. Equity mortgage loans can be adjustable, fixed can be lined as credit so borrowers can draw funds as needed.

Reverse Mortgages

This type of loan has an interest rate of either fixed or adjustable and are available for those who are over the age of 62 and have enough equity. The lender will make monthly payments to the borrower for as long as the borrower resides in the home.