Mortgage Loan
A mortgage loan is a loan made with a piece of real property as collateral. Most people think of buying a home when they think of mortgage loans. But there are many other types of mortgage loan.
A home mortgage loan is the most common variety, of course. You borrow money to buy a home from its owner, then spend the next several decades repaying the mortgage loan with interest. Often, the interest you pay amounts to much more than the amount you borrowed. It would make more financial sense to save your money, earning interest on it, until you had enough to pay cash for a home. But one does need a place to live, and it takes most of us a very long time to save up the price of a home. So essentially, people borrow places to live, they don’t buy them.
A commercial mortgage loan is used to acquire the use of commercial real estate, such as an office building or parking lot. As with homes, the commercial property serves as collateral for the mortgage loan. Unlike homes, the value of commercial property can vary depending upon the level of commerce conducted within it. A retail shop that generates millions per year in sales is worth more than one that struggles to cover its mortgage payments. Commerce fluctuates widely, so commercial mortgage loans are riskier than home mortgage loans and interest rates reflect that greater risk.
Bad credit mortgage loans are the riskiest of all, and bear the highest interest rates. No matter how late you have been in paying your bills or how recently you declared bankruptcy, there is some lender who will give you a mortgage loan. But the interest charged will be usurious. Still, people want to say they “own” homes or commercial property so badly that they often accept bad credit mortgage loans.
Second mortgage loans use the equity you have in property as collateral. Equity is simply the difference between a property’s current market value and what you still owe on the first mortgage loan. Second mortgage loans increase your total monthly mortgage loan payments, of course. Second mortgage loans are often taken to fund children’s college educations, start businesses, or bail someone out of jail.
Mortgage refinancing loans replace one’s current mortgage loan with a new one that has more advantageous terms, typically lower interest rate or lower monthly payments. Beware of adjustable rate mortgage refinancing loans which offer enticingly low interest up front but charge much higher interest rates later.