The article concerns the question – What are Mortgage Loans? If you are looking to buy a home, then you will probably need a mortgage loan, because you most likely don’t have enough cash on hand to buy it outright. Mortgage loans work in much the same way a car loan does- the borrower pays a down payment, and then makes a payment each month until the balance is paid off. Mortgage loans are obtained by the buyer, to pay the seller in full at the time of purchase.
Then, the buyer reimburses the lender for the amount borrowed, plus fees and interest. In most cases, the lender holds the deed to the property until the loan is paid off, but the buyer occupies and uses the property as if they owned it.
There are different types of mortgage loans, and the one that’s best for you will depend on your long-term goals and your financial status. Some people buy a house, planning to stay in it for life, and others buy homes as a short-term investment. To give each client the loan that suits their needs can take a lot of time and effort from both buyer and lender.
There are various fees associated with mortgage loans, such as points, closing fees, and the interest or annual percentage rate. Most of these fees are negotiable, and the cheapest mortgage loans sometimes are more expensive than others due to hidden fees. By comparing the APR of the loan, buyers can easily see which loan will cost less in the long run. However, getting the APR can be tricky, as it is not usually advertised and the buyer must ask for it.
If the buyer can pay a down payment of 20% of the purchase price, they will benefit from a lower interest rate and they won’t have to get private mortgage insurance, or PMI. This coverage is a requirement for buyers with no equity, as it will pay the mortgage if they cannot. Lenders see PMI as a way to safeguard their investment with a down payment of less than 20%, because the mortgage will initially be worth more than the property itself. That situation can change over time, as the loan is paid down to the point where the buyer has at least 20% equity in the property.
When PMI expires, if the buyer has missed payments, the lender can move into foreclosure, which means the buyer has gone into default on their contract. The lender can evict the buyer and resell the property to recoup their losses. Here, the buyer loses everything, and when this happens, it happens early on because people that have built up equity are less likely to allow a default. A mortgage holder who has equity can draw on it when they are strapped for cash, through refinancing. This can decrease monthly payments by stretching the mortgage over a longer period.
In most cases, a mortgage payment should not exceed 28% of the borrower’s income. To qualify for a mortgage, a buyer must have a good debt to income ratio, which includes credit card balances, car loans and other debts. A mortgage loan can be variable, fixed rate, long-term or short-term, and the right loan will depend on a number of factors. Before getting a loan, get some advice from a professional, research your options, and shop around.