Mortgage loans are a type of loan that is used to purchase a property or land. A mortgage loan is secured against the property, which means that if the borrower fails to make the repayments, the lender can seize the property to recover the money owed. Mortgage loans can be used for both business and home purposes. In this article, we will look at the different types of mortgage loans available for business and home purposes, their features, and their benefits.
Types of Mortgage Loans for Home Purposes
Fixed-Rate Mortgage
A fixed-rate mortgage is a type of mortgage loan where the interest rate remains the same throughout the loan term. This means that the monthly repayments will also remain the same. Fixed-rate mortgages are popular among homeowners because they offer stability and predictability. They are particularly popular among first-time homebuyers who want to know exactly how much their monthly repayments will be.
Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) is a type of mortgage loan where the interest rate can change over the loan term. The interest rate is usually fixed for an initial period, such as three, five, or seven years, and then adjusts periodically. The adjustment is based on a predetermined index, such as the prime rate or the London Interbank Offered Rate (LIBOR).
Jumbo Mortgage
A jumbo mortgage is a type of mortgage loan that exceeds the conforming loan limit set by the Federal Housing Finance Agency (FHFA). In 2021, the conforming loan limit is $548,250 for most areas in the United States. Jumbo mortgages are usually available for properties that are more expensive than the conforming loan limit.
Government-Backed Mortgage
A government-backed mortgage is a type of mortgage loan that is guaranteed by a government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the United States Department of Agriculture (USDA). These types of mortgages are designed to help people with lower credit scores or limited financial resources to purchase a home.
Types of Mortgage Loans for Business Purposes
Commercial Mortgage
A commercial mortgage is a type of mortgage loan that is used to purchase or refinance commercial real estate. Commercial real estate includes properties such as office buildings, retail spaces, warehouses, and apartment buildings. Commercial mortgages are usually offered by banks, credit unions, and other financial institutions.
Small Business Administration (SBA) Loan
An SBA loan is a type of loan that is guaranteed by the Small Business Administration. The loan can be used for a variety of purposes, including purchasing or refinancing commercial real estate, purchasing equipment, and working capital. SBA loans are usually offered by banks, credit unions, and other financial institutions.
Bridge Loan
A bridge loan is a type of loan that is used to bridge the gap between two transactions. For example, a bridge loan can be used to purchase a new property before the sale of an existing property is completed. Bridge loans are usually short-term loans with high-interest rates.
Mezzanine Loan
A mezzanine loan is a type of loan that is used to finance the expansion of a business. Mezzanine loans are usually offered by private equity firms or hedge funds. They are usually structured as a hybrid of debt and equity and are often used when the borrower is unable to obtain financing from traditional sources.
Benefits of Mortgage Loans for Home Purposes
Homeownership
One of the main benefits of mortgage loans for home purposes is homeownership. Owning a home provides a sense of stability and security. It also provides a sense of accomplishment and pride. Homeownership is also an excellent long-term investment, as home values tend to appreciate over time.
