Security Instruments – Mortgages
Most of the people believe Mortgage loans as those loans that are released by financial institutions for the purpose of purchasing real estate. In fact, Mortgages are one of the important security instruments that are used by lending institutions to provide loans.
Thus, Mortgage loans comprise of a contract written which acts as a binding agreement where in the primary lender always has the primary lien on the mortgaged property. The primary lending party acts as a priority lien among all other liens.
There are multiple mortgage loans floating in the market but the basic principles for all of them are simple. The consumer borrows money from the financial institution to pay off the home purchased and in return pays the principle and the interests due on the loan.
There is an important term associated with these types of loans. That term is – Collateral. Collateral is an asset that acts as a guarantee for the loan repayment. The creditor may seize the collateral in case the customer defaults on the payments.
Process of Mortgage Loan Sanctioning
The customer should try for the pre approval of the mortgage loan from the lenders as that would help in deciding on the budget for the property. This also helps in receiving mortgage at the time when you really need it. There is a small fee associated with the pre-approval but it is worth it as it saves much trouble when you do not want a good deal to slip from your hand just because of delays from the lenders end on loan approval process.
Usually, the down payment on a house purchase is anything between 5 to 20% of the cost of house. The rest of the amount is the mortgage from the loans. The down payment of the house happens before the mortgage that is the remaining amount after the initial down payment. The mortgages are of two types – payment of borrowed amount and the due interest on that amount.
The factoring of the property insurance and the real estate tax is included in the mortgage amount itself. There are multiple lenders available in the open markets that have variety of offers available to fit into your needs. It is best to do a thorough research for the best deal, rates and trustworthy lender. Thus, a good homework on the various mortgage lenders and schemes would always result in dividends later on.
Fixed or Adjustable Interest Rates of Mortgage Loans
The consumer must decide on the fixed or floating loan rate of interest beforehand. The fixed rate of interest is the lock in interest rate decided for the term of the loan whereas the floating interest rate is tied to the federal deposit rate and hence may vary over the period of loan term. Thus, if the interest rates are lower at the time of underwriting, go for fixed rate of interest else choose the floating rate of interest. The term of the mortgage loan is also an important input to this decision.