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Types of Loans

Fixed Rate Mortgages
A fixed rate mortgage is a mortgage in which the interest rate does not change during the entire life of the loan. Fixed rate mortgages are typically for terms of 15, 20 or 30 years.

Balloon Mortgage
In a balloon mortgage, the periodic payments do not result in the principal being fully amortized (paid back) at the end of the term; thus the last principal payment, or balloon payment, is substantially higher than those made during the life of the mortgage. At the end of the term, the borrower either pays off the loan or seeks refinancing at current interest rates. Terms for a balloon mortgage can be for three, five or seven years.

Home Equity Loan
A home equity loan is a type of loan in which the borrower uses the equity of their home as collateral. A home equity loan is a one-time lump sum loan and is typically referred to as a closed-end loan. These types of loans are amortized over a shorter term than first mortgages and often with a fixed interest rate. When a borrower takes out a home equity loan, it creates a lien against their home and reduces equity in their home.

Home equity loans are often used to finance major expenses such as home improvements, medical bills or education. One cannot use a home equity loan to purchase a home; however, you can use the funds to refinance your existing mortgage.

Home Equity Line of Credit
With a home equity line of credit, also referred to as a HELOC, the borrower can choose when and how often to borrow against the equity in the property, with the lender setting an initial limit to the credit line based on criteria similar to those for closed-end loans (home equity loans).

Construction Loan
A construction loan is a short-term loan, sometimes referred to as interim financing, which provides the funds necessary for the building or development of a real estate project. Normally, the amount to be loaned is committed by the lender, but the actual disbursement is dependent upon the progress of the construction. Funds are distributed in a series of draws, depending upon work required by the lender. The lender will typically require periodic inspections during the construction phase and a final appraisal when the home is finished. A take-out loan for permanent financing also needs to be in place before the lender will typically commit to the construction loan. This assures the construction lender that permanent financing will be available to repay the construction loan.

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