With a mortgage loan, the borrower puts real property as collateral (security) for the debt. Mortgage loans are a very common way of financing real estate purchases in the United States. If the borrower defaults on the loan, the lender is legally permitted to take possession of the real property.
It is always best to get a mortgage from a local lender. They will no the market better and give your collateral a higher valuation than other lenders will. If you want to buy a house outside the United states you should always borrow the money from a local bank in the country where you want to buy the house unless you have a lot of untapped equity in your house. If you want to by a house in Norway you should use a Norwegian mortgage, If you want to buy a house in Spain you should get a Spanish mortgage and so on.
What is a fixed rate mortgage loan?
In the United States, the fixed rate mortgage loan – also known as FRM loan – is the most common type of mortgage loan for private house owners. With a fixed rate mortgage loan, you negotiate an interest rate for the mortgage loan before you accept the loan offer and this mortgage rate is then fixed for the duration of the loan, e.g. 25 years.
A fixed rate mortgage loan will typically come with an annuity repayment scheme where you always pay the same amount to the lender each month. This means that when you have just taken out the loan, a very large part of your monthly payment will go towards paying the interest, and only a small part will be used to pay down the principal. As the principal gets smaller, a larger and larger part of the monthly payment will be used to pay down the principal.
Many home owners like paying the same amount of money to their mortgage loan provider each month, since this makes it easier for them to budget their household expenses. There are other alternatives available though, such as the linear repayment scheme where you start out with big monthly payments and then gradually pay less and less each month.
What is an adjustable rate mortgage loan?
The adjustable rate mortgage loan – also known as ARM loan – is the dominating mortgage loan type in many European countries. In theory, the interest rate of an ARM is floating and thus constantly subject to daily market changes. In reality, most borrowers fix the interest rate for their ARM loans for a certain amount of time, e.g. three months, a year or a few years. It is however not fixed for the whole duration of the loan.
The adjustable rate mortgage loan is also known as a floating rate mortgage loan or variable rate mortgage loan.
What is an interest-only mortgage loan?
With an interest-only mortgage loan, you don’t pay down the principal (i.e. you debt) gradually throughout the lifespan of the loan. Instead, you make monthly interest payments only. When the term is up, you have to pay back the principal in full in the form of a lump sum repayment.
Interest-only mortgage loans tend to be popular among buyers that plan to sell the real estate fairly soon after buying it, e.g. developers who buy a house, fix it up and then put it on the market again, hoping to make a profit. It can also be an appealing alternative for buyers who need a house to live in right now but know that they are likely to relocate or get a smaller / bigger home within a few years.
For the lender, this type of mortgage loan is comparatively risky, since no buffer is created against a decrease in property value. They might therefore ask for a fairly high interest rate, and/or require you to pay a larger than normal part of the purchase price without any help from the mortgage loan.
In some countries, including the United Kingdom, the investment-backed interest-only mortgage loan is fairly common. With this type of loan, the borrower is required to make monthly payments into an investment plan, e.g. an equity fund. The idea is to create an asset that is so valuable that it can be used to pay back the principal when the term of the loan is over.
What is a NOCNOI mortgage loan?
With a No Capital – No Interest mortgage loan, you don’t make any monthly payments to the lender. Instead, the principal and the accumulated interest is to be paid back in full when the loan term is over.
This type of loan is often marketed to older real estate owners who wish to dip into their home equity. In these scenarios, the loan isn’t obtained in order to purchase property. Instead, it can be a way for a retired person to get cash right now without selling their home right now.
The borrower can often chose between getting a lump sum from the lender or receiving a monthly payment. Monthly payments can make it possible for a retiree to enjoy a more comfortable lifestyle than what the pension alone would be able to pay for.