Mortgage Loans

“Mortgage loans” accounts form a large part of the US economy. Mortgage, in its simplest terms, stands for a loan that is applied for handling the finance required to deal in real estate. This loan needs to be repaid within a stipulated period, the rules of which are dictated by the type of loan that the borrower has opted for.

Mortgage Loans

The borrower, also called a mortgager, offers a lien to the lender or the mortgagee, which is a legal claim for possession of an asset against which a mortgage loan has been secured by the mortgager. Here, the mortgager can be an individual or organization seeking financial aid for purchasing a residential/commercial property and the mortgagee can be a financial entity such as a bank or any other intermediate organization linking to the banks offering the mortgage loans.

There are various types of mortgages available for financing the personal, home loan, business establishment or other such credit needs of the borrower. The most common ones being-

Fixed Rate Mortgage (FRM): In the US mortgage markets, the FRM is considered to be the standard. In this mortgage type, the interest rate is fixed throughout the tenure of the loan. The tenure is typically for up to 30 years.

Variable Rate Mortgage or Adjustable Rate Mortgage (ARM): In ARM, the interest rate is usually fixed for a certain amount of time, after which it varies according to the market dynamics.

Convertible Mortgage: This mortgage identifies a combination of both FRM and ARM where initially the loan can follow a fixed rate mechanism and after a certain period, it can be switched to ARM by following the variable-interest rate mechanism.

Balloon Loan or Bullet Loan: It is a partially amortized loan, where the monthly payment dues are calculated over a fixed term; however, the balance principle amount dues have to be deposited before the end of the fixed term.

Besides these, there are several other loan options which include the Assumed Mortgage loans, Commercial loans, Equity Loans, Jumbo Mortgages, Term loans or interest-only loans and many more.

Once the borrower finds a suitable mortgage option, he needs to go through the mortgage loan pre-approval procedure. The steps involved in a pre-approval from the lender are covered below:

Submission of Documentation

The required documents which vouch for the borrower’s credit history are submitted to the lender.

Document Verification

The submitted documents are verified as a part of background check done on your financial stability. In this process, the lender inspects the borrower’s credit history for income, employment details and the capability to make the initial down payment.

Approval of Documents

The approval of the document clears the pre-approval stage for the borrower, however if the lender is not satisfied or doubtful about the authenticity of the documents, the borrower may need to review the submitted documents and follow the entire pre-approval process again in order to establish himself as a legitimate borrower.

If your loan is of an amount that you feel is life-changing for you or your family, consider taking out a mortgage loan insurance policy. It’ll save you from bankruptcy when something would go wrong!

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