Types of Mortgages

Banks, Savings and loans associations, and financial institutions provide two basic types of mortgages: the conventional mortgages and the mortgages with federal agency backing.

A conventional mortgage has a fixed interest rate during the loan period, and the real estate serves as a collateral to the loan. Borrowers withdraw the loan through a monthly payment that includes interests as well as the reduction ofd principal through the loans life span.

For example, a person buys a house for $240,000, makes a down payment of $40,000, and accepts a mortgage loan of $200,000 from the bank at 7% during 30 years. The monthly payment is $1330.60 which can be determined by using Microsoft’s Excel software.

How a conventional works
Mortgages and loans for installation carry the same financial principles and are essentially the same for except the lapses of time.

Mortgages have a period of 15 to 30 years, while installation loans have shorter maturities. The difference in maturities occur because of the lent amount to finance the buying of a house which are invariably greater and require longer periods of time to be repaid.

Equal payments are made on a monthly basis with a part of the payment oriented to reduce principal and the rest is to cover expenses for interests charged by the loaner.

In the initial years of the mortgage the largest payment amount are oriented to cover interest expenses. As the balance of the debt is reduced, the portion of payments applicable to interest expenses also decline, and the portion of payments oriented to reduce the loan increase. Almost at the end of the mortgage’s lifetime most of the payments are applicable to reduce the loan balance. There are many software programs for personal computers that can print a pay off program.

Some financial calculators can also determine the balance of mortgages. However, if you do not own a computer nor a financial calculator you can plot a program very easily using pencil and paper.