Buying a house is a dream that everyone possesses but when one looks at the high realty rates, an average person is fearful of even broaching the topic. But today, financial institutions have opened up many ways to make financial hurdles easier for the common man. One such initiative is a mortgage loan.
The basic idea of these financial loans
To put it simply, this loan can be acquired by buyers of a real estate property to raise funds to buy the property or by the owners to raise money for any other need. The bank gives the loan applicant at least 80 percent of the cost of the property as the loan and this loan has to be paid back with the interest that has been agreed upon mutually.
In both the cases, the person who avails the loan has to secure his or her property to get the loan. In the case of the mortgage not paid on time, the lender acquires full right to the property.
The working of these loans
These loans work like any other loan. But a borrower of a these loans may have to pay many related fees such as closing costs, etc.
The down payment for this loan can be decided by the borrower. The interest rate for the loan is reduced depending on the lump sum amount he or she has paid. Monthly mortgage payment that the borrower has to pay is decided upon four main factors, abbreviate as PITI, which stands for Principal Interest Taxes Insurance.
The Principal is the loan amount the borrower gets from the bank and this amount is fixed after deducting the down payment.
Interest is the rate charged on the loan.
Taxes is the money the borrower has to pay for the property taxes and it is put into an account referred to as anescrow, which is a third-party that collects the taxes till it is due.
Insurance is what the borrower has to purchase as a precaution against any damage to the property that might occur in future.
Benefits of these financial loans
Helps purchase of homes easy and affordable: Since the period of the loan can stretch up to 30 years, it is convenient and affordable for the borrowers to pay off the loan gradually. The amount that needs to be paid every month is affordable and it does not put an extra financial burden on the borrower.
These loans are cost effective: When it comes to monthly interest, the interest is much lower than others because the loan is secured against the property of the borrower.
Easy availability of cash: Another advantage of these loans is that one can avail easy cash for any other requirements such as home revamping, medical bills or even for college tuition fees.
Additional tax exemption: Those who have availed for these loans is eligible for tax deduction and even the interest on the loans that the borrower is expected to pay every month can also be tax deductible. Even the insurance that the borrower has to purchase can also be eligible for tax deduction.