The party who borrows the money and gives the mortgage (the debtor) is the mortgagor; the party who pays the money and receives the mortgage (the lender) is the mortgagee. Under early English and U.S. law, the mortgage was treated as a complete transfer of title from the borrower to the lender. The lender was entitled not only to payments of interest on the debt but also to the rents and profits of the real estate. This meant that as far as the borrower was concerned, the real estate was of no value, that is, dead, until the debt was paid in full—hence the Norman-English name mort (dead), gage (pledge). Since then the laws have changed dramatically and now allow the borrower to have complete control over the real estate while the mortgage is being paid off – the key is to get this loan at the best mortgage rates possible.
A common type of mortgage loan is the fixed rate mortgage. With this loan, your payments and interest do not change for the term of the loan – this type of mortgage often has higher rates but gives the borrower the stability that other types of mortgages that offer best mortgage rates do not possess.
Fixed rate mortgages come in different packages. The most common is the 30-year fixed. However, other terms are available. By getting a 15 or 20-year fixed mortgage, the loan is paid off more quickly. Although, these are not the best mortgage rates around, you get a lower interest rate with these terms and you can build equity in your home at a faster rate because you are paying more money toward the principal each month. However, your monthly payment most likely would be higher than with a 30-year fixed. A somewhat newer option is a 40 or 50-year fixed mortgage. These offer lower monthly payments but have a higher interest rate. More of your monthly payment goes toward paying interest instead of principal.
Adjustable Or Variable Rate Mortgages
The interest rate on an adjustable rate mortgage can vary, usually with the rate on the 1-year Treasury bill. The lender can let the rate adjust monthly, quarterly, annually, every 3 years or every 5 years, depending on the type of loan you get. These types of mortgages usually have best mortgage rates compared to the fixed rate loans.
The advantage of an adjustable rate mortgage, as we just mentioned, is that the rate and monthly payments are usually lower than a fixed rate mortgage. The disadvantage, however, is that that good rate can go up if the Treasury bill rate increases, thus suddenly increasing your monthly payment. This risk could be well worth it if you consider the savings you might be getting by paying best mortgage rates available in the market.
A fixed rate mortgage can be a good option for buying a home. If you plan to stay in the home for a very long time, a fixed mortgage may be right for you. You have the security of knowing what your payment will be each month since the interest rate will not change. If it looks like interest rates are going to rise, a fixed rate mortgage can be a better option than an adjustable rate mortgage (ARM), which has an interest rate that changes at set intervals. You can secure your interest rate before they rise and keep that rate for the term of your loan.
Ultimately the decision of which loan type is better is up to the borrower; however a mortgage broker can be a valuable advisor when it comes to getting you the best mortgage rate possible, they can also demystify some of the complexities of these different types of mortgages.