During the 1980’s the adjustable rate mortgage came into
existence. The key feature of this type of loan is the flexible of
the interest rate. These rates reflect current market value and can
move either up or down. As a result, the total amount of repayment
can not be calculated. Rates are kept artificially low for the first
year after which changes are made at set incremental times, usually
yearly. The lender will place caps on how high the interest rate can
rise over the life of the loan. Annual caps are another common
feature that protects the borrower in case market rates sky
rocket.
Although conventional loans and ARMs are the most common form of
mortgages, there are a variety of others available. Here are two of
these variations:
- Reverse Mortgages
- Balloon Mortgages
Reverse Mortgages are an option for homeowners who are at least
62 years of age and own their homes or owe a small amount. The
lender provides the individual with a loan in the form of a line of
credit, monthly payments or a lump sum. Payments are not made until
the individual permanently vacates the home. At such time the lender
takes possession of the home.
Balloon mortgages are short term loans which are often 5 or 7
years in length. The payments are fixed and are relatively low. At
the end of the loan the balance is due in one big "balloon"
payment.
