Understanding Mortgages As Easy As One, Two, Three

by Paul Danzur

Mortgages are very straight-forward loan types. Mortgages are just loans to buy or secure a purchase against property. The property can be anything from a house to a piece of vacant land. The prospective buyer is referred to as the borrower and the financial institution as the lender. The institution will requisite a collateral from the borrower before loan application approval. The institution will requisite a collateral from the borrower before loan application approval. The collateral serves as insurance for the bank that should the borrower fail to pay his or her loan, it be called in to cover arrear payments. The property will also in case of payment default be reposed by the bank.

The mortgage can either be variable or fixed interest bearing depending on the agreement. Interest payments can be anything from 6 months to 10 years. Repayment of the principle amount can be up to 35 years.

Mortgage pre-approval is a very important process for numerous reasons including to determine what the max loan amount is that you qualify for. Buyers will also have a better understanding of the price range that they will be able to invest in, thus time is not wasted on viewing property out of the their league.

The secret to significant savings on your mortgage is to settle the loan as quickly as possible. More so when you have a variable interest rate.

Unfortunately, the borrower will not be able to avoid paying insurance in some form as this is a requirement by the lender when the loan is approved. The purpose of insurance is to ensure full settlement of the loan should specific events such as death, disability, loss of employment and critical illness occur.

Keep in mind that your budget should make allowance for extra costs such inspection, appraisal, legal, survey certificate fees as well as tax adjustments, insurances and moving cost when you buy property. Your mortgage is definitely not the only payment you will have every month relating to your property purchase.

About the Author:
Paul writes about finance and mortgages. He also writes in Dutch about reken hypotheek uit and tweede hypotheek.
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April 26, 2009 | Filed Under Banking

 

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