What Are Mortgage Terms?

What are Mortgage Terms? Read here to find out what a mortgage term is and what types are available!

A mortgage term is the length of time that the borrower has to repay the mortgage. Unlike many types of loans, mortgage loans can come with a variety of mortgage term options. Knowing the difference between mortgage terms is very important.

Standard Mortgage Terms

The first type of mortgage term is a standard mortgage term. With this type of term, the borrower has a fixed period of time to pay off the loan and the loan payments are calculated based off of the length of the term. The most common mortgage term lengths are 15 and 30 year mortgage terms, although some lenders offer 40 year mortgages.

Balloon Payments

The second type of mortgage term involves balloon payment mortgages. In a balloon payment mortgage, the mortgage loan is amortized over a typical amortization period, but the mortgage term comes due much sooner than the loan is expected to be paid off. For example, a loan may have a 30-year maturity, but a 7-year term. This means that after the 7th year or mortgage payments, the mortgage borrower will be required to repay the entire balance in the form of a balloon payment. If the borrower can’t pay off the loan or have it refinanced, the loan will be in default.

Unlimited Mortgage Term

Another type of mortgage term, which was more popular a few years ago is an unlimited mortgage term. This type of mortgage term comes with an interest only mortgage that has not balloon payment. In this type of mortgage, the borrower is never required to repay the principle balance. Since this type of mortgage adds an obvious level of risk to the lending institution, many mortgage lenders no longer offer mortgages with unlimited mortgage terms.

What Are Mortgage Terms?

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