Mortgage can be defined as the transfer of a legal/equitable interest in a specific immovable property for securing the payment of a debt. In short, it is the security of immovable property or assets, being provided to obtain a loan. The person who transfers the interest in the property is called the mortgager and the lending institution, in whose favor the transfer takes place, is called the mortgagee. The agreement or the instrument between the parties is called the mortgage deed. This deed takes into account all aspects, like the rate of interest to be charged, the term of the debt, and the transfer of ownership, among other factors. One of the most common types of mortgages is the home mortgage, where the home being purchased is offered as security for the loan availed to finance the purchase. Commercial mortgages are loans provided with real estate, other than a residential property, as collateral, to secure payment of principal and interest, or just interest alone. Interest rates on mortgages are not fixed at any given point in time, but are subject to change. In fact, they keep changing dynamically, according to the demand and supply considerations and the discount rate which is decided by the Fed. Mortgages can be of different types. The two basic types of mortgages are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). The interest rates on the FRM stay same throughout the term of the mortgage, while they change periodically in the case of ARM, depending upon changes in the underlying economic index. Interest rates also vary depending on the kind of mortgage. For example, interest rates are usually higher for a commercial mortgage than for a residential property mortgage. The most common variant of commercial mortgages is the fixed rate commercial mortgage. In this case, the interest rate remains constant throughout the term. |
