What is a Mortgage
A mortgage is an agreement under which property is bought by borrowing money. Lender is free to take over the house in case of non-repayment. It is a type of secured loan where property is at stake. The amount of money one can borrow is three times the annual earnings. Money lenders loan up to 75% of the property value.
Mortgage can be categorized into – low interest rate, adjustable rate, assumable, reverse and interest only types. Low interest rate is a desirable condition. Mortgage brokers perform a market study on lenders with competitive rates and provide the best deal to the borrower. Still, a personal check is advisable about the company recommended by the broker.
Assumable mortgage can be transferred between the two owners. It is very reasonable to assume a mortgage than looking for a fresh mortgage. This mortgage is helpful only when you are in position to make down payment covering the difference value of the property and mortgage involved.
Adjustable mortgage, as the name suggests, has variable rate. Initially the rate is low to make the deal attractive. Afterwards, rate varies as per the market fluctuation. It may happen that borrower ends up paying less if the rate goes down but be ready to face increased rate situation too.
Interest-only type of mortgage is a vicious trap. There is a risk that loan may never be paid off. It is advisable to take this mortgage only when borrower is sure shot about the rise in price of the property. It simply means only interest portion can be paid by the borrower till the time he does not write off the loan completely.
Reverse mortgage allows owner’s access to the property value. The borrower may get some money in lieu of the part of the property kept on mortgage. This cash borrowed needs to be repaid by the loaner or its heirs with interest. This mortgage is actually no mortgage at all.
Another type of mortgage most prevalent is fixed rate mortgage. Fixed rate mortgage is beneficial for short term loans. A fixed rate is applicable for a specified period ranging from six months to 5 years. This is the most popular type of mortgage and is used to assure guaranteed payment amounts. So, repayment schedule can be arranged beforehand. This type of mortgage is most promising if the rates are stable for longer period and lender agrees to a fixed rate for that period without considering the increase in market rate.
There are some tips that may be useful for coming out of the mortgage safely. Always look for the better deal. Get a competitive rate of interest. Keep the mortgage years as low as possible. Always keep checks on the calculation regarding payment terms. There are fair chances of making extra payments.