Loan

Home loans come in various types. Knowing this before you take out a loan is crucial. We can read through the many types of loans and help choose the right one for you. However, fixed-rate mortgages are the most common, as most home buyers want the security of stable monthly payments. Gradually paying mortgages are the loans with rising monthly payments for a set number of time, usually five or ten years. Then, the payments are fixed for the rest of the loan's term. Gradually paying mortgages are more costly at the start as the borrower benefits with high interest rates and thus more likely to get approved. Gradually paying mortgages also enable more house buyers who cannot afford the larger initial payments to qualify. A disadvantage of gradually paying mortgages is that the loan balance is susceptible to increase over time. This happens when interest rates rise and payments from the first years are used to cover any shortfall. Then the loan balance can exceed the original amount borrowed. This is known as "negative amortization." Negative amortization is the condition where over any given period, such as one month, the monthly loan payment exceeds the interest owed. Negative amortization leads to an increase in the loan balance.