Definitions on Types of Mortgages Part 3

Last of the definitions for now - to dry a topic for me to last long.

Interest Only Loan - An interest-only loan is a loan in which for a set term the borrower pays only the interest on the capital; the capital remains owing. At the end of the term the borrower may renew the interest-only mortgage, repay the capital, or (with some lenders) convert the loan to a principal and interest payment loan at his option.

Graduated Payment Mortgages - A mortgage where monthly payments start low but increase by a fixed amount each year for the first five years. The payment shortfall or negative amortization is added to the principal balance due on the loan. The advantages is a lower monthly payment at the beginning of the loan term. The disadvantages are usually a slightly higher rate than traditional fixed-rate mortgage loans and lenders usually require a larger down payment.

Simple Interest Rate - Interest calculated daily - difference between a standard mortgage and a simple interest mortgage is that interest is calculated monthly on the first and daily on the second.

80/20 Mortgage - The 80/20 mortgage is simply two loans for 100% of the purchase price. It is a first mortgage at 80% of the purchase price with a 20% second mortgage. (Great for no money down)

So that’s it for definitions right now. Time for some more interesting posts.

Sharon