Mortgage

Mortgage Loan Explained

 

Mortgage loan is a type of loan, which is usually offered on the mortgage property it can be personal or real. It is actually a security in which mortgage is kept in repaying of the loan with a specified interest rates.  In simple words, it is a kind of agreement in which one party agrees to pledge his property, and the second one give him required money as loan. Mortgage loans are usually acquired in case of buying properties either commercial or residential, where the initial value is usually very high.

Types of mortgage loans:

There are many types of mortgages available; however, Following are the most common types of mortgage loans.

Fixed-rate mortgages:

In which both the parties agreed upon a fixed rate of interest, which remains same throughout the whole period of loan. It is a very good and popular type of mortgage. About, 75% of home loans are based on it. It allows the home owner to easily estimate the length of loan period and can also easily design his budget. It is very advantageous for a home owner as it prevents him from the tension of the rise in an interest rate as the rise or falls never impact on fixed mortgage loans. Fixed-rate mortgage loans mostly come in 10 years, 15 years and 30 years fixed interest rate.

Adjustable rate mortgages:

It is opposite of the previous one. In this type, the interest rate changes over time. Adjustable-rate mortgage is shortly termed as ARM. A higher risk is involved in this type throughout the entire loan period. As the market interest rates never remain constant. So, a change in a market rate of interest will surely result in a change in your monthly payments. However, in case of a fall in a market, interest rate is beneficial in this situation.

Balloon mortgages:

This type of mortgage is offering a structured payment planning similar to the fixed-rate mortgage. However, the period of loan is shorter as compare to fix one it is usually of five to seven years.  The outstanding balance must be paid as a whole in the end of the period.

Interest-only mortgages:

This is a type of mortgage, which allows you to pay only interest on the loan for a specified period. The homeowner will not pay the principal amount during this period but after that period he will pay the principal amount as well as an interest rate which is usually higher as compare to standard loan.

Legal regulation:

Initially, mortgages were not recognized by law, because of which very few people can access to mortgages loans and mostly they suffered due to unauthorized rules. Every lender was having his rules and regulations. Nowadays, a complete law is practicing for the protection of customers and for the practices of mortgages lending institutions. All the legal regulations of mortgages loans are enforceable by law and are recognized as different acts. Some legal regulations are as follows.

  • Fair debt collection practices: the act was adopted in 1978, and the purpose is to promote accuracy in the collection of debts. According to this law lenders are strictly prohibited by using certain methods in the collection of debt like unfair, abusive methods like harassment or over charging as well as the disclosure of debt information of one party to another party.
  • Home mortgage disclosure act: the act was adopted in 1975 and is implemented on 21st July 2011. According to this act, lenders are bound to report about accepted and denied public loan data. The main purpose of this act is to find out whether financial institutes are serving communities or not.
  • Equal credit opportunity act: according to this law, it is prohibiting credit discrimination because of the belongingness to different communities, races, sex, religion and nationality, marital status, age, etc.
  • Truth in lending act: the law is enforcing lenders to clarify all the terms like exact cost, rate of interest, total payments, total borrowed amount, closing costs and other information.

Interest rates on mortgages:

There are lots of people who just give importance to mortgage rate; however, the fact is that along with a mortgage rate one should understand the importance of interest rates on mortgages. In only fixed-rate mortgage loan, one should keep an eye on mortgage because it is not influenced by the market interest rate. In all the other types’ interest rate is much ameliorated. It greatly affects your monthly payments in both positive and negative ways. Mortgage money comes from investors, bank deposits and brokerages. In order to attract investors rates should be kept high. When demand goes high the rates of interest go down but when demand goes down, then to attract investors, they increase rates of interest. Rates of interest and mortgage rates are inversely proportional to each other. As the price goes high it results a fall in interest rate or vice versa.

Conditions and charges associated with mortgages:

There are some charges that are associated with your new home loan or mortgages.

No early repayment charges:

By choosing this option you will have to repay the loan in a lump sum, without having any early repayment charge. In this type, there is a specific scheme designed for customer. You have to pay other charges like legal fee and sealing fee. This is the best option for those who are able to repay the loan within starting few years or for those who want to remortgage by finding a better rate.

Valuation fee:

It is a kind of short survey, which is conduct on the behalf of a lender. Lender also put some administration fees in valuation fee in order to meet the cost of arranging valuation. It is not fully detailed in order to find a detailed report you must acquire a house buyer report as it is on the behalf of applicant and is more detailed.

Legal fee:

It is important to hire a licensed solicitor both for applicants and lenders in order to act on behalf of them. It is the duty of the solicitor to search for all the legally important points in land as it will minimize the risk of fraud.

 

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