Nontraditional Mortgages

AAA

DEFINITION of 'Nontraditional Mortgages'

A broad term describing mortgages that do not take the traditional form. A traditional mortgage would require a relatively high initial down payment of about 25% and 25-year payment schedule with an interest rate that is compounded on a monthly basis. Nontraditional mortgages include interest-only mortgages, payment option adjustable rate mortgages (ARMs) and subprime mortgages.

INVESTOPEDIA EXPLAINS 'Nontraditional Mortgages'

A subprime mortgage is extended to individuals who are of higher risk due to a history of bankruptcy, a higher debt to equity ratio, a history of non-payment of debt despite sufficient cash flow and/or a low credit score.

Interest-only mortgages are balloon loans in which the borrower must service the interest during the life of the loan and then make a balloon payment at maturity to pay off the principal.

ARMs are loans that have interest rates that will be reset in periodic intervals. These intervals can vary from months to years, and will cause payments to fluctuate more than a traditional mortgage.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  3. Subprime Loan

    A type of loan that is offered at a rate above prime to individuals ...
  4. Interest-Only Mortgage

    A type of mortgage in which the mortgagor is only required to ...
  5. Subprime

    A classification of borrowers with a tarnished or limited credit ...
  6. Payment Option ARM Minimum Payment

    An option to make minimum payments on an payment option ARM, ...
Related Articles
  1. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  2. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  3. Savings

    Reduce Interest With An All-In-One Mortgage

    "Offset" mortgages combine a checking account, home-equity loan and mortgage into one account.
  4. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  5. Options & Futures

    The Reverse Mortgage: A Retirement Tool

    Discover another way to fund your retirement without having to make payments on a loan.
  6. Options & Futures

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  7. Credit & Loans

    Mortgage Basics

    Learn how to navigate what may be your biggest and most important loan.
  8. Credit & Loans

    What is the key to finding your ideal mortgage?

    Learn what steps you need to take in order to locate the perfect mortgage for your budget, lifestyle and long-term financial goals.
  9. Home & Auto

    Where are home values falling the fastest in the US, and why?

    Learn about the metropolitan areas in the United States experiencing the largest drops in median single family homes values in 2014 and the reasons behind it.
  10. FHA mortgages offer flexibility and low down payments, though they're often pricier than traditional loans backed by private mortgage insurance.
    Credit & Loans

    Before You Choose An FHA Mortgage: 7 Key Points

    FHA mortgages offer flexibility and low down payments, though they're often pricier than traditional loans backed by private mortgage insurance.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center