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Mortgage Loan
Basic concepts and legal regulationMortgage loan typesLoan to value and downpaymentsValue: appraised, estimated, and actualEquity or homeowners equityPayment and debt ratiosStandard or conforming mortgagesCapital and interestInterest onlyNo capital or interestInterest and partial capitalForeclosure and non recourse lendingUnited States mortgage processPredatory mortgage lendingOption ARMCostsThe United States mortgage finance industrySecond layer lenders in the USCompetition among US lenders for loanable fundsThe mortgage loans industry and marketMortgage typesUK mortgage processMortgage insuranceIslamic mortgages
Basic concepts and legal regulationMortgage loan typesLoan to value and downpaymentsValue: appraised, estimated, and actualEquity or homeowners equityPayment and debt ratiosStandard or conforming mortgagesCapital and interestInterest onlyNo capital or interestInterest and partial capitalForeclosure and non recourse lendingUnited States mortgage processPredatory mortgage lendingOption ARMCostsThe United States mortgage finance industrySecond layer lenders in the USCompetition among US lenders for loanable fundsThe mortgage loans industry and marketMortgage typesUK mortgage processMortgage insuranceIslamic mortgages
Interest only
The main alternative to capital and interest mortgage is an ' interest only'' mortgage, where the capital is not repaid throughout the term. This type of mortgage is common in the UK, especially when associated with a regular investment plan. With this arrangement regular contributions are made to a separate investment plan designed to build up a lump sum to repay the mortgage at maturity. This type of arrangement is called an ' investment-backed mortgage'' or is often related to the type of plan used: endowment mortgage if an endowment policy is used, similarly a Personal Equity Plan (PEP) mortgage, Individual Savings Account (ISA) mortgage or pension mortgage. Historically, investment-backed mortgages offered various tax advantages over repayment mortgages, although this is no longer the case in the UK. Investment-backed mortgages are seen as higher risk as they are dependent on the investment making sufficient return to clear the debt.It is not uncommon for interest only mortgages to be arranged without a repayment vehicle, with the borrower gambling that the property market will rise sufficiently for the loan to be repaid by trading down at retirement (or when rent on the property and inflation combine to surpass the interest rate).