Mortgage loan is the system used to finance the private ownership of real property. It is the financial help asked to buy property. The Mortgagor (borrower) gives the mortgagee (lender) a lien of property as collateral and gets the payment in pre-decided payment periods. Mortages have their identified interest quotients but this quotient and other features of mortgages may fluctuate considerably. It is to be kept in mind that mortgage itself is not the debt on the mortgagor; it is the security interest of the mortgagee. Mortgage loan is the debt.
Mortgage loan has different components that need to be understood thoroughly but the component which distinguishes mortgage loan from an ordinary load is foreclosure or repossession. This term indicates the prospect of the foreclosure or seizure of the property under certain circumstances. The other basic components of mortgage loans are property, mortgage (security interest of the lender), principle, and interest. Principle is the original amount of loan and interest is the financial fee charged for using the lender’s money. Banks are usually the mortgagees but sometimes investors also lend mortgage loans.
Mortgage types differ with the laws and legal requirements of the area. The change occurs in the root properties of mortgage e.g. character of interest, loan life and the number of payments and how often they are made etc.. For example, the interest can be fixed for the entire term or variable and prepayment may or may not be restricted etc..
Floating Rate Mortgage (or ARM) and Fixed Rate Mortgage form the major mortgage types. In most of the countries, FRM is considered standard mortgage plan. Combinations of FRM and ARM are also widespread. Fixed Rate Mortgage offers the fixed interest rate for the entire term. 15 and 30 years are the commonly used loan lives. Only the interest quotient is guaranteed to be constant in FRM while other additional charges like property taxes etc may vary. The ARM on other hand offers a variable interest quotient over the term but it is kept constant for small episodes of time. The interest quotient in ARM depends upon the market interest scale. You can get the mortgage loan you need when the interest rates are low and get it adjusted over the term. In ARM, the fraction of the interest rate risk transfers from mortgagee to mortgagor. That is why, ARM is preferred in the markets where fixed rate funding is either hard to get or very expensive.
Balloon loan or Partial amortization is also one of the important mortgage types. In this type of mortgage loan, the sum of monthly expenses is calculated over a specified period, but the principle balance is due sometime before that period. The flexibility of the interest quotient may set as desired i.e. fixed or floating.
This mortgage website is user-friendly resource, which can help you understand adjustable mortgages.