When we discus mortgage the term that automatically comes to the foreground is ‘mortgage loan’. Technically speaking, mortgage loans can be defined as a certain type of loans that are secured by a real property by using a note for mortgage. In these cases, these mortgage notes act as evidence of the presence of the loan. The term ‘mortgage’ is always used to refer to a mortgage loan.
A mortgage loan includes two distinctive documents – mortgage note or promissory note and a security interest that is evidenced by that mortgage document in question. Under normal circumstances these two documents are assigned or clubbed together. However, at times they are separated and in that case the owner of the note, generally termed as “holder” will have the authority to foreclose the mortgage.
The two fundamental varieties of amortized loans are Fixed Rate Mortgage loans (FRM loans) and Adjustable-Rate Mortgage loans (ARM loans). Now ARM loans are also termed as floating rate or variable rate mortgage. In certain countries, for instance the United States, it is generally a norm to avail fixed rate mortgages under normal circumstances, though floating rate mortgage loans are also quite common. Combinations of Floating Rate Mortgage loans and Fixed Rate Mortgage loans are quite common as well.
Mortgage loans generally are designed on long-term basis. The associated periodic payments of the mortgage loans are more or less akin to the annuity and are calculated as per the time value of the money formulae. The most fundamental arrangement and setup of a mortgage loan asks for a definite amo0unt of payment on monthly basis over a certain period of time – say 10 to 30 years. However, that would primarily depend upon the local conditions. Whatever the period of time might be, but during this period, the principal or main component of the mortgage loan would be repaid in gradual process that is termed as amortization.
Several varieties mortgages are in use all over the world. Mortgages are categorized on the basis of their characteristics and the types of mortgages each of them support. The main types of mortgages are:
- Interest loans
- Payment Amount & Frequency
- Term Mortgage loans
The most popular way of repaying the secured mortgage loan is by making regular capital or principal payments and he interest over a particular period of time. This practice is generally referred to as self amortization in Unites States and as repayment mortgage in the United Kingdom.