Mortgage
Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a legal claim on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest. The loan to value ratio (LTV) is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: with a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay $2,500 as a down payment. The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV ratio, the less cash home buyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require a mortgage insurance policy.

Types of mortgages
Fixed rate, Flexible rate, Interest Only - all of the different types of home loans that are available these days can puzzle and confuse new home buyers. But mortgage experts say that virtually every home loan is one of two general types: Repayment Mortgages and Interest Only Mortgages. Repayment Mortgage is the old fashioned, traditional type of mortgage and remains the only way the property is actually guaranteed to be yours at the end of the mortgage term - provided you have repaid the loan. Your mortgage debt is divided into principal repayments (repayment of the money you borrowed) and interest payments (repayment of the interest you're being charged for the loan). As you pay off your mortgage every month you're paying off a bit of principal and a bit of interest until the full debt is repaid. You usually pay off mostly interest in the early years and then gradually more of the capital debt. It may seem as if this is costing more but that's because unlike the other types of mortgages you're paying off the capital and not just the interest.

Interest Only Mortgage is an arrangement where you're only paying off the interest on the loan.

None of your capital debt is being repaid directly. This is supposed to have been repaid by the end of the mortgage term by your having made simultaneous monthly payments into an investment fund. The idea here is that this fund has hopefully grown enough to pay off the capital and leave you with a surplus. To do this your mortgage advisor may offer you an investment "side" or "by product", which they'll claim to be a suitable type of investment to pay off the capital part of the mortgage. You should be very clear that if the investment is not a success then you could lose your home - probably at the end of the mortgage term.

Home loans are further divided into a fixed rate loan and a flexible rate loan . Before you start looking for a home, make sure you understand the pros and cons of each type of loan. Here are the basics you need to know.

Fixed Rate Mortgages: 
Payments remain the same for the life of the loan, which is usually 15 or 30 years. 15-year loan is commonly made at a lower interest rate. Equity is built faster because early payments pay more principal. 30-Year loans guarantee that in the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses. With most fixed rate mortgages, your monthly principal and interest payment will not change for the term of the loan, regardless of whether interest rates rise or fall. In exchange for that stability, you may have a higher interest rate than you would with an adjustable rate loan. Fixed rate loans are available with different length terms and usually, the longer the term, the lower your monthly principal and interest payment will be.

Balloon Mortgage:
Offers very low rates for an initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)

Two-Step Mortgage:
Interest rate adjusts only once and remains the same for the life of the loan.

Flexible rate, also known as ARMS (Adjustable Rate Mortgages) are linked to a specific index. They generally offer lower initial interest rates as well as lower monthly payments. ARMS may allow borrower to qualify for a larger loan amount. An ARM may make sense if you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates. Many people who choose adjustable rate mortgages also qualify for fixed rate loans. With most adjustable rate mortgages, your interest rate is fixed for a set period of time and then begins to adjust for the rest of the loan's term.

Reverse Mortgages
A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home. It can be paid to you in one lump sum, as a regular monthly income, or at the times and in the amounts you want. The loan and interest are repaid only when you sell your home, permanently move away, or die. This option is geared towards older citizens, as you have to be at least 62 years old to be eligible for a Reverse Mortgage. One of the owners must live in the house most of the year. Reverse Mortgage is given for single family, one-unit dwellings or two-to-four unit, owner-occupied dwelling as well as some condominiums, planned unit developments or manufactured homes.

NOTE: Cooperatives and most mobile homes are not eligible. Most RM's require no repayment for as long as you live in your home. They are repaid in full when the last living borrower dies, sells the home, or permanently moves away. Because you make no monthly payments, the amount you owe grows larger over time. By law, you can never owe more than your home's value at the time the loan is repaid.   You continue to own the home, so you must pay the property taxes, insurance, and repairs. If you fail to pay these, the lender can use the loan to make payments or require you to pay the loan in full. Reverse mortgages can be paid to in cash, all at once, or as a monthly income or credit line. The amount you get usually depends on your age, your home's value and location, and the cost of the loan. The greatest amounts typically go to the oldest owners living in the most expensive homes getting loans with the lowest costs.

Mortgage professionals suggest you keep a few key tips in mind when navigating the various mortgage product choices. People looking for a home tend to focus on finding it before they think about what kind of mortgage they'll get. That could be a mistake, as mortgage professional can tell home buyers how much they can afford before they start shopping. That can save both time and heartache by making sure that home buyers don't fall in love with a house they can't afford.