In that article you will find some basic information on Mortgage Loan. Today, having a four- bedroom house in a posh locality with its own facilities is not considered a luxury anymore, but rather a necessity. However, comfort and security of that nature always comes at a price. With real estate all over the world increasing at its own pace, it is becoming harder to own one’s own piece of earth. A five figure price is now a thing of the past, but has now advanced to 7- 8 figures. How does one pay such a hefty price upfront and still have one’s dream house?
That is where mortgage steps in. A ‘mortgage’ works like any other loan- money is borrowed from a bank or lender, which is paid back with interest over a certain number of months or years. But in this case however, there is a difference. The loan is secured against one’s house or flat. Which means that, in case the loan is not paid back in time, the bank or
money lender has the right to seize the property? Most often, the seized property is then sold to recover the money back.
Mortgages are divided into two broad classifications. The first one is called a ‘Fixed Rate Mortgage’, where the amount to be repaid and the interest to be paid remains fixed for the entire decided period. This is generally the method followed in the USA and UK and is considered standard.
The second kind of mortgage is called an ‘Adjustable Rate Mortgage’ where the interest rate remains fixed for a certain period of time and after which the interest rate automatically adjusts itself (by going up or down) against some index such as the Prime Rate, or Treasury Index. In both cases however, there are four important clauses that need to be thought over clearly before signing on any dotted line-
The interest is usually fixed, but in some cases they can be altered at certain pre decided periods during the duration of repayment. It can in addition also be at a really high rate or at a lower rate.
The word ‘term’ refers to the length of time during which the loan would have to be repaid. The term is usually for a minimum period of one year
The amount of money to be repaid back on a regular basis depends on the lender.
Repayment usually happens on a monthly basis, but if the money lent is huge, and the term shorter, then repayment may also happen every fortnight.
Usually the lender may ask for a small amount of the loan to be paid upfront so as to be convinced that the borrower is ‘good’ or ‘sound’. Lenders also take into account a small percentage of risk, in the event that the loan may not be repaid within the stipulated time.
Mortgages themselves can be paid back in different ways. The most common mode of repayment is called ‘Repayment Mortgage’. Here, the money borrowed and the interest decided, is paid back on a monthly basis towards reducing the amount owed. It is important that if one has decided to go for a mortgage of this kind that you should also try to stay at the same place for a few years atleast; as usually the initial years are spent in only paying the interest.
The second way of paying back is through an ‘Interest Only Mortgage’. Here, on a monthly basis it is only the interest that is paid back and not the initial amount borrowed. The one plus point in this kind of scheme would be that the payments being made every month would be low. On the other hand however, if not today, the initial amount borrowed in the first place would have to be paid back tomorrow.
This means that the actual debt itself is not going to go away, but repayment would have to be through some alternate means such as a stock option, or savings plan etc. Sometimes, lenders may even suggest the purchase of certain luxury items towards finishing up the debt. Historically, such a mortgage had a good tax advantage over other ways of repayment, but most countries have changed their laws. Then again, there is the concern of making the right investments to ensure that the loan is fully cleared.
A ‘Reverse Mortgage’ is a kind of mortgage where neither the capital or interest in paid during the lifetime. It is cleared after the borrower passes away. It is generally not preferred but, sometimes exceptions are made for old people or pensioners. Here, care would be taken to ensure that the borrower has sufficient amount of funds even after he passes away to repay the debts. An “Interest and Partial Capital’ loan is where the monthly payments are calculated over a certain period of time, but the outstanding capital balance is due at some point in the term.
Today, finding a lender is not at all difficult as most banks offer the service. They would in addition first, check the borrower’s assets and financial standing before actually lending out the capital. Once a check of the family and the financial standing is completed, banks usually appoint one of their own people to assist the family in getting a loan. This person acts as a spokesperson for the bank, and listens to any concern the family may have, consults with the bank and then addresses the concern.
Simultaneously, if the bank has any issues to discuss, the spokesperson would be interacting with the family about the same. Also, there are other options that can be looked at for example a number of websites on the net which specialize in mortgages would also not only lend you the loan, but also ensure that monthly payments and the like take place smoothly.
Since there is so much competition, the terms and conditions, and also the eligibility requirements for securing a loan, would also be competitive in nature. It is however, very important to look at all the terms and conditions laid down, and also analyzing what kind of mortgage would best be effective, before agreeing to anything.