All about Mortgage Loans

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It is every family’s dream to have their own home, where they can create some beautiful memories, raise their kids, spend their time with their loved owns and a lot more memories and of course a place to relax in old age.

But buying a house is not a joke. Many wait for really long time to buy a house, and many others spend their lifelong savings to purchase a house and still can’t accumulate enough funds to buy their dream home. So does it mean that buying a house is next to impossible thing for many of us? No, my dear friend, that is not true. For such people there are banks and financial institutions, and these institutions have made the dream of buying a house a reality. This is been made possible with the help of mortgages and loans.

All about Mortgage Loans

In a simple term mortgage is nothing but a type of loan, which is usually taken to buy a house. In this type of a loan, the borrower gives the collaterals the house itself. After taking the collateral in form of the house, bank or mortgage broker Montreal will lend a large amount of money, which is then used by the borrower to buy the house.

This amount is then repaid by the borrower over a long period of time in form of small installments. The amount of loan and installments both are decided by the bank or the financial institution keeping in mind the repaying power of the borrower.

Mortgage loans can be of various types; like there are some which are called as “fixed rate mortgage” (FRM), where as some are variable mortgages or “Adjustable Rate Mortgage” (ARM). There are other types of mortgages too, depending on various factors. A list of all those is as follows:

  • Interest: Interest rate could either be fixed for the entire life of the loan or it could be variable ad change from time to time as per the terms and conditions of the loan. In these types the interest rate could sometimes be higher or can also be lower.
  • Payment: Mortgages can also be classified on the basis of its payment plan, like the payment amount and payment frequency. Payment amount and frequency is decided at the time of taking the mortgage and is an agreement between the borrower and lender. Though many institutions allow the borrower to increase or decrease the amount, if requested by the borrower.
  • Term: Mortgage loans can also be classified on the basis of its duration. Though most of these loans are for a long period of time like 10 to 20 years.
  • Prepayment: Few types of mortgage loans can be prepaid, without any fee, where as some have to be paid in full duration.

When one opts for the fixed rate mortgage, he or she also pays down the principal amount gradually. It is referred to as amortization. This helps those who do not have a big amount to buy a home and can pay the loan amount, small or big, gradually, as per his or her convenience till the end of the period of the loan.

Categories: Home loans

Mortgage loans come with convenience and benefits

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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.

Categories: Mortgage loans

Latest and Happening Types of mortgage loans to Avail

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Mortgage loan is classified on the basis of the interest levied or the period of the loan and the payment amount and frequency of the payment.

Fixed rate mortgage loan: The loan type in which the interest rate remains same throughout the period of the loan is referred to as fixed rate mortgage loan.  This type of loan is said to be the most availed loans. The period of the loan generally can be 10 years, 15 or 30.

Advantages:  When home owners avail this loan, they can budget easily for they know how much interest is due and when because the rate remains the same throughout the period of the loan. Also, when the borrower for linear payback, the periodic amount will also decrease!

Adjustable Rate Mortgage: The loan in which an interest is fixed for a specific period of time is known as the adjustable rate mortgage loan. That means, once the decided period ends, the interest rate on the loan changes significantly. This type of loan is regarded riskier than other loans because there is a chance of a higher payment when the rate changes.

Advantages: The advantage of availing adjustable rate mortgage is that the home buyer can be eligible for a higher loan and thus can buy his or her dream home, even though a little expensive. Considering the risk, the interest rate might be a little lower.

Depending on the number of years availed; ARMs can be classified into different types. For example, the 10/1 ARMs in which the interest rate is fixed for 10 years, and then after the due period, a new interest rate is fixed.  There is also 5/5 ARM in which the rate remains the same for the first five years and then on the 6th year, a new rate is fixed which again continues for the next five years. In the 5/1 ARM, the interest rate remains the same for the first five years but changes every year from thereon. These loans are beneficial for those who are planning on buying and staying in the purchased home for a longer period of time or permanently.  Similarly, there are 3/5 and 3/1 ARMs too.

The other type of ARM is the 2-step mortgage, in which a particular interest rate is fixed for a specific period of the loan and another interest on the remaining term. The new interest is fixed as per the current rate in the market. The loan applicant can either choose for a changing or variable rate or a fixed interest.

Balloon mortgage loan: This loan is given for a shorter period of time and is similar to fixed rate mortgage. The borrower has to pay a large payment at the end of the loan period, referred to as balloon payment. The monthly interest payment too is lower in this case. This type of loan proves to be an advantage for those who plan to sell the property after a certain period of time. For others, this type of loan can be quite risky.

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