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A mortgage is a loan that is availed from a lender such as a financial institution,
credit union, or bank to buy a property, residential or commercial. The base of a
mortgage is that if the borrower does not pay back the sum borrowed the lender will
take away the property and recover the money by selling it.
A mortgage has two main aspects the principle or capital, that is the sum borrowed
and the interest charged on the borrowed sum. In a mortgage what happens is that
the property purchased is kept as collateral by the lending institution.
The basics of mortgages are:
1. A mortgage is amortizing, which means monthly payments made towards the principle
amount borrowed and interest due will pay back the loan in a fixed tenure of time.
2. The tenure of a mortgage loan is usually 10, 15, 30, 0r 40 years and the length of
time is determined depending on the age and capabilities of the borrower. However a
mortgage must be paid back in say 10 years as a longer tenure means larger amounts
will be paid to the lender as interest which may sometimes exceed the principle sum
borrowed.
3. Many mortgages require a down payment of say 20% of the sum borrowed.
4. Most lenders of mortgage loans require that the loan is covered by a private
mortgage insurance, government insurance, or guarantee.
5. Interest rates on mortgages vary and 15 year loans have lower interest rates
than 30 year loans. Interest rates can be fixed or floating and depend on the kind
of loan chosen.
There are many kinds of mortgage loans:
• Conventional mortgages are not insured by the government. Loans with a
down payment of less than 20% will require insurance to protect the lender. In depth
information on conventional mortgage loans is at Fannie Mae and Freddie Mac websites.
• FHA-Insured mortgage loans are integral to the US Department of Housing
and Urban Development initiatives. This gives low downpayment loans to those who
cannot afford downpayments. The downpayment is usually just 3% of the loan amount.
But here the mortgages are for low cost housing. Information on such programs is
at the HUD website.
• VA-Guaranteed Loans are for those in military service and requires no
downpayment. More information on this is at http://www.homeloans.va.gov/ .
• Rural Housing Service Loans are for those who need homes in rural areas.
There are special schemes for low-income people too. Generally these mortgages are
at lower interest rates.
• State Housing Finance Loans are for first time home owners and are at lower
interest rates than that prevalent in the market.
• ARM or Adjustable Rate Mortgages are mortgage loans where the interest
rates changes according to financial market movements such as Treasury bill rates.
These loans are offered by banks and other lenders.
When you are thinking of buying a house or a commercial real estate property you
need to first learn what mortgages are and find out what will suit you best. Study
mortgages, your personal finances, future plans, and your housing needs before
setting out to buy a property. Think of long-term and not immediate needs.
About Author
Barry allen is a freelance writer for
Lowest Mortgage Rates , the premier
website to find Mortgage, mortgage lender, home mortgage, mortgage rates, mortgage
quotes, mortgage calculator, Mortgage Company, mortgage loans and many more.
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