A Mortgage Loan - All You Need to Know
A mortgage is a loan that a person secures to finance the purchase of a house. In other terms, Mortgages can be understood as a different form of a loan which you can collect from a bank.
There are several different types of loans. For instance, Student loans, Personal loans, and Business loans but a Mortgage loan is unique because a mortgage loan, the bank uses your home as collateral.
What does Collateral mean in Mortgage banks?
Collateral is assets that a bank could use take back from you when you fail to make your payment in a Mortgage loan agreement.
"If you fail to clear your Mortgage loan on the agreed time the bank can legally claim your house and take it away from you and this lowers the risk for a bank, allowing it to charge lower interest on the loan".
When and why do people get Mortgage Loans?
During the time when you want to buy a home but you do not have enough money, or the house price is much higher than what you can afford. At this moment, you can approach the bank to get what is called a Mortgage loan. This is offered by any bank or Mortgage banks and even Mortgage Companies.
Mortgage Banks require Down-payment;
The bank will also require you to make a down payment. This is the upfront payment and most of the time you have to make a down-payment of 20% which is mandatory.
The down-payment amount varies with different Mortgage banks but on average it's usually at 20%
Once you make a down-payment, you are obligated to borrow or take a Mortgage loan that consists of 80% of the amount you need to pay for the house since you have already made a down-payment of 20%.
The Verification Process Of Mortgage Banks
The Mortgage banks shall verify your credentials by looking at your credit reports, and your income statement., the Mortgage bank will then offer you a mortgage contract that might consist of the following.
○ The 80% Mortgages loan
○ 5% fixed rate
○ 5-year term
○ 40 years amortization
Now Explain what these Mortgage loan terms represent
● 5% Fixed Rate
The 5% fixed rate, means you must pay a 5% interest rate on your 80% Mortgage loan annually.
● 5-Year Term
This means you are locked into this agreement of Mortgage term of 5% interest rate paid for 5 years. Regardless of whether the interest rate is volatile, that is if it goes up or goes down.
There are 2 types of interest rates that Mortgages banks offer
Fixed Interests Rates
These are regarded as a safer option for most Mortgage loan seekers because the interest rates are constant. However, this option is also regarded as the most expensive.
Variable or floating Mortgages loan interest rates
These Mortgage loans' variable rates, usually change over time and they aren't regarded as safe by most people who take Mortgage loans from banks, but they are a much cheaper mortgage interest rate loan plan compared to fixed interest plans.
40 Years Amortization
This is the amount of time you are mandated to complete the mortgage bank loan to attain full ownership of the property you bought with the Mortgage loan.
You will be the sole owner of your house, once you finish paying the interest rates of the Mortgage loan over time.
The advantages Mortgage bank loans have;
This is the advantage of taking Mortgages from mortgage Banks:
"instead of putting money into a landlord's pocket, every time you pay a mortgage you own a little more of your home since after paying the mortgage the property shall be yours"
During mortgage owning time, the house is split between equity, what you own and the bank's Dept
Equity in a mortgage loan means; Something that you own, every time you make an initial instalment to the bank, you turn your mortgage debt into equity.
Bank Dept in mortgage means; what you owe the bank during your mortgage period or amortization. Every time you pay the fixed or variable interest rate you gain more equity and the bank Dept is reduced.
Another advantage of taking a mortgage loan from the mortgage bank is the possibility of selling the same house for a profit.
When you have been presented with the chance to sell a house for profit you can do so, and use the money gained from the sale to pay the mortgage while you also walk away with extra revenue.
This is possible because you and the bank are not partners and you are not required to share your profits.
A list of the top 5 mortgage loan provider banks in America
3: Chase
In conclusion
I hope this article has helped you in understanding what a mortgage loan is, and how you can attain it.
Remember a mortgage is a type of loan you can take from a bank and you are mandated to make a down-payment of 20% before you can collect it.
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