This article is about Methods In Paying Capital In A Mortgage Loan. Mortgage contract exist when there is a principal debt, usually a money loan, previously obtained by the debtor through offering several properties as security. Properties that can be used as collateral include house and lot, cars, stocks, bank accounts and other personal properties.
Mortgage contract is only an ancillary or a subsidiary contract. The principal contract is the loan obtained by the debtor. It is therefore not necessary to execute the terms in the mortgage contract unless the principal loan has not been paid entirely.
To avoid the terms of the mortgage contract from being executed and the properties offered as security be foreclosed, the debtor must pay the principal mortgaged loan. The debtor and the creditor may consider several methods for the payment of the loan. Some of these methods are the following:
1. First method is by directly paying the entire amount of loan to the creditor. If the debtor has become financially capable of paying his total loan, there is no need for foreclosure of properties under the mortgage contract. This is the easiest and fastest way to remove from the obligation of mortgage. However, this is true only if you have money to pay the entire amount.
2. Both parties may also agree on paying both the capital or the principal loan and the interest. This is perhaps the most common methods of payment of loan. Lenders, who may be either an individual or group of individuals such as partnerships and corporations, usually gain profit in a loan by imposing interest over it.
In United States, this is commonly known as self-amortization and is called as repayment mortgage in UK. Interest may be made as a whole interest of the loan or as fixed. Say for example ten percent interest for a loan of fifty thousand dollars. Whatever period the debtor will pay, the interest will not be increased but fixed on ten percent. There are also compounded interest and an interest from an interest.
3. Another method of payment of mortgage loan is by paying interest only. This is a type where capital is not paid during the term of loan. This is common in United Kingdom where there is an offered investment plan instead. It is made by contributing to the investment plan which when making profit will be applied to the mortgage loan when it matured.
4. Payment of mortgage loan without capital or interest is perhaps the most beneficial to the debtor. However, payment will be made only after the debtor dies or sold the property subject of mortgage. It is usually availed of by the elders who are already retired. Some types of mortgage with this payment method are reversed mortgages and lifetime mortgages.
5. Partial payment of capital or principal loan and interest may be agreed to by the parties. This is typical in a balloon mortgage where the amounts of monthly payments that are due are computed and the entire balance is given a separate term or period to become due.
6. Payment of the principal loan can also be made through foreclosure of properties offered as security in the mortgage contract, given that both parties agreed. This is the last option for a debtor who is not capable of paying the entire capital.
One piece of advice I really want to give you is this: do not take out a mortgage loan to go for a risk capital investment with higher returns. I did this once, and it cost me $150,000.