Mortgage

By Author: Santhosh Kumar
Total Articles: 54
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A mortgage loan, also referred to as a mortgage, is used by purchasers of real property to raise funds to buy real estate; by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property. This means that a legal mechanism is put in place which allows the lender to take possession and sell the secured property ("foreclosure" or "repossession") to pay off the loan in the event that the borrower defaults on the loan or otherwise fails to abide by its terms. Mortgage can also be described as "a borrower giving consideration in the form of collateral for a benefit (loan).

Mortgage borrowers can be individuals mortgaging their home or they can be businesses mortgaging commercial property (for example, their own business premises, residential property let to tenants or an investment portfolio). The lender will typically be a financial institution, such as a bank, credit union or building society, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries. ...
... Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. The lender's rights over the secured property take priority over the borrower's other creditors which means that if the borrower becomes bankrupt or insolvent, the other creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.

How does a mortgage work?
The money you borrow is called the capital and the lender then charges you interest on it till it is repaid. The type of mortgage you are able to apply for will depend on whether you want to repay interest only or interest and capital.
The two main types
Mortgages fall into two main categories:
• Fixed rate – the interest you’re charged stays the same for a number of years, typically between two to five years.
• Variable rate – the interest you pay can change.

Fixed rate mortgages
The interest rate you pay will stay the same throughout the length of the deal no matter what happens to interest rates. You’ll see them advertised as ‘two-year fix’ or ‘five-year fix’, for example, along with the interest rate charged for that period.
Advantages
• Peace of mind that your monthly payments will stay the same, helping you to budget
Disadvantages
• Fixed rate deals are usually slightly higher than variable rate mortgages
• If interest rates fall, you won’t benefit
Watch out for
• Charges if you want to leave the deal early – you are tied in for the length of the fix
• The end of the fixed period – you should look for a new mortgage deal two to three months before it ends or you’ll be moved automatically onto your lender’s standard variable rate which is usually higher
Variable rate mortgages

With variable rate mortgages, the interest rate can change at any time. Make sure you have some savings set aside so that you can afford an increase in your payments if rates do rise.
Variable rate mortgages come in various forms:
Standard variable rate (SVR)
This is the normal interest rate your mortgage lender charges homebuyers and it will last as long as your mortgage or until you take out another mortgage deal. Changes in the interest rate may occur after a rise or fall in the base rate set by the Bank of England.
Advantages
• Freedom – you can overpay or leave at any time
Disadvantages
• Your rate can be changed at any time during the loan