4 Types of Mortgages You May Not Know About

by admin on November 5, 2011

This is a guest post by Bruce Hyland.

It used to be that buying a home was simple. You would take out your 30-year, fixed rate mortgage and that would be that. 30 years of the same payment later, and the house was yours. These days things are much more complicated. You’ve got FHA loans, VA loans, Jumbo mortgages, Adjustable Rate mortgages, and many more. You can get dizzy just thinking about all of your options.

In this article I will be writing about 4 types of mortgages that are a little unique and that you may not be aware of.

First, let’s make sure we’ve got the basics down pat. What is a mortgage? According to Wikipedia, a mortgage is:

A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.
A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.

Here are 4 unique types of mortgages:

Streamlined 203(k) Limited Repair Program
FHA’s Streamlined 203(k) program permits homebuyers to finance up to an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this new product, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser.

Bridge / Swing Loans
Bridge loans are also called swing loans. They are used when you have a home for sale and need the proceeds from the sale to purchase a new home.

If your current home doesn’t sell in time, you can get a bridge loan, which uses that home as collateral and allows you to close on the new house.

A bridge loan pays off the old mortgage and goes toward the down payment on the new home. When the old home does sell, you pay off the bridge loan and continue paying the traditional mortgage on the new home.

Equity Mortgage Loan Types
Home equity loans are typically junior loans and should not be confused with a basic refinance, which means paying off an existing mortgage and replacing it with another loan. Refinances can take 30 days or more to process. Home equity loans fund fairly quickly and are subordinate to an existing first mortgage. In other words, an equity loan falls into second position.

The lender’s security for the loan is your home, meaning if you go into default and do not make your mortgage payments or otherwise abide by the terms of the loan, the lender has the right to foreclose.

Reverse Mortgages
Reverse mortgage are available to any person over the age of 62 who has enough equity. Instead of making monthly payments to the lender, the lender makes monthly payments to the borrower for as long as the borrower resides in the home. The interest rate can be fixed or adjustable. Wondering if a reverse mortgage is for you? There are a variety of reverse mortgage calculators available to help you decide.

These are just 4 types of mortgages, there are probably hundreds more. What kind of mortgage do you have?

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