Significance of Mortgages

(Author: spivey003 | Article Views: 23 | Word Count: 550 | Published: Apr 12th 2008)

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There are different types of finances available and a Mortgage is a kind of loan specifically designed to fund the property to be purchased. This is a method of using property as security for the performance of an obligation that is payment of a debt. The main aspects of a mortgage are principal or capital and interest on the capital. Under mortgage the property purchased is offered kept as collateral security by the borrower. Mortgages are available such as first mortgage, re-mortgage, pari passu charge mortgage etc. With the increase in property value the bankers and lenders are offering longer repayment periods. Mortgage is a charge created on the property in favor of the lender / banker as a security for money lent. Mortgage home loans are normally offered for 15 years, 20 years or 30 years. Negotiating skills play an important role in negotiating the interest rates. Loans for short period say 15 years or 20 years is viable as the interest outgo is comparatively less than a 30 year loan. If there are some other financial obligations, than long period say 30 year loan is preferred. So the period of mortgage loan is decided based on the affordability of interest and other financial commitments. The other question to be answered is that fixed rate mortgage or adjustable rate mortgage. Mortgage loan takers normally go in for adjustable rate mortgages for short period loans and fixed rate mortgage for long period loans. The break even point to be worked out between adjustable rate and fixed rate, then the type of mortgage has to be decided.

Properties can also be mortgaged on pari passu charge i.e., same property can stand as security with two or more banks as first charge, second charge etc. In the event of any default in repayment of loan, the bank having first charge over the property has better hold on the property than other banks.

Apart from Banks, financial institutions, insurance companies, credit unions offer home loans against mortgage of the funded property. The interest rate also varies among different institutions. The different process involved in mortgage of loan are : the applications duly completed, validation of the application, obtaining information from third party about the title of the property and the credit worthiness of the borrower, risk analysis and pricing, underwriting procedures and completion of the terms and conditions of an agreement. In order to quicken the process, the application should be submitted with full details along with all relevant documents.

As mortgage is a long term financial commitment, proper care should be taken before availing a mortgage loan with regard to repayment capacity, type of mortgage, analysis on interest rates, selecting a dependable mortgage institution, intelligent decision on tenure of a loan. Some institutions insist on down payment of certain percentage as a condition for sanctioning of loan. Government undertaking banks normally offer mortgage loans at affordable interest rates and the EMI (monthly repayment) is calculated on diminishing value basis whereas private moneylenders and private banks charge interest rates on flat interest system and there are other fees associated such as one time processing fee, documentation fees etc.

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