Generally speaking, a mortgage is a loan obtained topurchase real estate. The mortgage itself is a lien (a legal claim)on the home or property that secures the promise to pay the debt. All mortgageshave two features in common principal and interest.

Also Consider LOAN TO VALUE (LTV)
The loan to value ratio is the amount of money you borrow compared with the priceor appraised value of the home you are purchasing. Each loan has a specific LTVlimit. For example With a 95% LTV loan on a home priced at $50,000, you couldborrow up to $47,500 (95% of $50,000), and would have to pay, $2,500 as a downpayment.

The LTV ratio reflects the amount of equity borrowers have in their homes.The higher the LTV the less cash homebuyers are required to pay out of theirown funds. So, to protect lenders against potential loss in case of default,higher LTV loans (80% or more) usually require a mortgage insurance policy(PMI).

WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH
Fixed Rate Mortgages Payments remain the same for the life of the loan

Types

15-year
30-year

Advantages

Predictable
Housing cost remains unaffected by interest rate changes and inflation.

Adjustable Rate Mortgages (ARMS) Payments increase or decrease on a regularschedule with changes in interest rates; increases subject to limits

Types


Balloon Mortgage- Offers very low rates for an Initial period of time(usually 5, 7, or 10 years); when time has elapsed, the balance is due orrefinanced (though not automatically)
Two-Step Mortgage- Interest rate adjusts only once and remains the samefor the life of the loan. ARMS are linked to a specific index or margin.

Advantages

Generally offer lower initial interest rates
Monthly payments can be lower
May allow borrower to qualify for a larger loan amount

WHEN DO ARMS MAKE SENSE
An ARM may make sense if you are confident that your income will increasesteadily over the years or if you anticipate a move in the near future andaren't concerned about potential increases in interest rates.

WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS

30-Year

In the first 23 years of the loan, more interest is paid off than principal,meaning larger tax deductions. As inflation and costs of living increase,mortgage payments become a smaller part of overall expenses.

15-year

Loan is usually made at a lower interest rate.
Equity is built faster because early payments pay more principal.