Mortgage Loan and its application details can be stressful but we already have you in mind. Join us to get a detailed explanation and application details below. However, here are the types of Mortgage and their loan process A mortgage is “a borrower giving consideration in the form of a collateral for a benefit (loan)”. Mortgage borrowers can be individuals mortgaging their home or they can be business 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 and, credit union, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries.
A mortgage loan or, simply, mortgage is used either by buyers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged Also, mortgage is an agreement that allows a borrower to use property as collateral in order to secure a loan. Agreements are signed when you borrow to buy a house stating that your lender has the right to take all drastic measures if you don’t make your required payments on the loan.
Terms associated with Mortgage Loan
- Property: the physical residence being financed. The exact form of ownership will vary from country to country, and may restrict the types of lending that are possible.
- Borrower: the person borrowing who either has or is creating an ownership interest in the property.
- Lender: the bank or other Financial institution. (In some countries, particularly the United States, Lenders may also be investors who own an interest in the mortgage through a mortgage-backed security. In such a situation, the initial lender is known as the mortgage originator, which then packages and sells the loan to investors. The payments from the borrower are thereafter collected by a loan servicer.
- Principal: the original size of the loan, which may or may not include certain other costs; as any principal is repaid, the principal will go down in size.
- Mortgage: the security interest of the lender in the property, which may entail restrictions on the use or disposal of the property. Restrictions may include requirements to purchase home insurance and mortgage insurance, or pay off outstanding debt before selling the property.
- Foreclosure or repossession: the possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan; without this aspect, the loan is arguably no different from any other type of loan.
- Interest: a financial charge for use of the lender’s money.
- Completion: legal completion of the mortgage deed, and hence the startof the mortgage.
- Redemption: final repayment of the amount outstanding, which may be a “natural redemption” at the end of the scheduled term or a lump sum redemption, typically when the borrower decides to sell the property. A closed mortgage account is said to be “redeemed”.
The pledge you made on your property as collateral is your “mortgage’’ and in your agreement, the bank gets permission to put a lien on your home if need be so they can foreclose it.
Mortgage loan types
A lot of factors broadly define the characteristics of the mortgage.
- Interest: Interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods; the interest rate can also, of course, be higher or lower.
- Payment amount and frequency: The amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
- Term: Mortgage loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.
- Prepayment: Some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.
There are various types of mortgages and you need to understand the terminology in order to pick the right loan for your situation.
They are risky and can be useful loans for getting into a home.
Adjustable rate mortgages:
This is special because the interest rate on the mortgages adjust with interest rates in the marketplace.
Advantages of Adjustable Rate Mortgage
- The Bank has no option than to loan you money at a below-market rate.
- You ge reward with a lower initial rate by the Bank because, you are taking a risk in the sense that there could be a rise in the interest rate in the future.
Disadvantage of Adjustable Rate Mortgage
- The payment can get so high that you have to default on the debt.
How To Manage Adjustable Rate Mortgage
- It is ideal to have a loan with restrictions and “Caps”.
Caps are limits in how much an adjustable rate mortgage rate can adjust actually. Your loan may include a guaranteed number of years before the rates starts adjusting – for instance the first five years. These restrictions can create some programs but removes some of the risk associated with adjustable rate mortgage.
How the Adjustable Rate Mortgage work?
It has a Lifetime caps which limits the extent at which your ARM mortgage rate can change over the lifespan of the loan. In case your lifetime cap of 5%, The interest rate on your loan will not adjust upward more than 5%. The Period cap limits how much your rate can change during a given period – one or two year period for example.
If you have a period cap of 1% each year and the rates rises 3% that year, your ARM mortgage rate will only rise 1% because of the cap. This is because caps vary. The first adjustment may be up to 5% . You can cap the subsequent one at 1%. However, in case the rates get so high that you hit the upper dollar limit in your payment, you may not be able to pay off all the interest you owe for a given month.
ARM flavors available
- 1 year ARM mortgage: the rate is for seven years then adjusts annually up to any cap.
- 7/1 ARM Mortgage: the rate is fixed for seven years then adjusts annually up to the cap if any.
- 10/1 ARM Mortgage: this rate is for 10 years then adjusts yearly ( up to cap if any).
- Second Mortgage: this is also known as Home Equity Lines of Credit. (HELOCs).
Fixed Rate Mortgage:
This allows a borrower to know what all future monthly payments will be. . In case of linear payback, the periodic payment will gradually decrease.
Your payment will not vary when you use a fixed rate mortgage because the interest rate is fixed.
Calculate how long it will take to pay off all the principle and interest with a fixed rate and pay the same monthly payment through the entire fixed rate mortgage term.
Fixed Rate Mortgage Types: there are two main types of fixed rate mortgages.
- 15 year Fixed Mortgages
- 30 year Fixed Mortgages
10-year or 20-year fixed rate mortgage exist but not commonly used.
Advantages of Fixed Rate Mortgage
- Your payments won’t change no matter what happens with interest rates.
- It allows you can foresee what your housing payments will be in the future.
Disadvantage of Fixed Rate Mortgage
- It has higher monthly payment than any other mortgage choices.
- Adjustable mortgage rate (ARM): this rate rises and fall as interest rates rise and fall.
Second Mortgage is a loan that uses your home as collateral and allows you borrow against the value of your home.
Several Forms of Second Mortgage
- Line of credit
- Lump sum
- Rate choices
Second Mortgage Advantage
- Interest Rate: it has lower interest Rate.
- Tax benefits
- Loan amount: you can borrow a large amount.
Second Mortgage Disadvantage
Cost , Interest cost and Risk of foreclosure
Uses of Second Mortgage
- For Debt Consolidation , Education, Home improvement and avoiding Private Mortgage Insurance (PMI).
Reverse Mortgage provides income for homeowners who have sufficient Home equity. Only available to homeowners aged 62 or more and you really don’t have to repay these loans until you move out of your house. Reverse mortgage provides money for anything u want, just meet the demands.
Advantage of Reverse Mortgage
- Lump Sum
- Interest rate
- Periodic payment
- Line of credit
Requirements of Reverse Mortgage
- Sufficient equity
- Ongoing expenses: continue to pay all the ongoing expenses related to your home.
- Balloon Loans: this type of loan will require you to pay off the entire loan in large payment.
- First Mortgage
- Interest Only Loans: this allows you to pay only the interest cost on your loan monthly.
- Refinance Loans: this loan allows you to get a new mortgage in order to pay off the old Loan.
How To Get a Home Loan
Go to the Mortgage Loan homepage. Click on the apply Now link. Follow the instructions given and consider the followings.
- Documentation and Ratios: to verify if you have enough income to repay any loan approved.
- Credit and Income: your income determines whether you get a loan or not.
- Debt to Income: your existing debts are clearly examined to ensure you have sufficient income to pay off all your loan especially the new one you are applying for.
- Loan to Value Ratio: here, Lenders calculate this to show how much you are borrowing compared to how much the property is worth.
- Pre-approval: this is a preliminary process where lenders evaluate your credit information and your income . You can borrow from Online lenders, Mortgage Brokers and Banks.
Other Types Of Loans
- VA Loans
- FHA Loans
- Government Loans
- Jumbo Loans
List of Mortgage Companies
- First Home Mortgage
- Bay Equity Home Loans
- American Financial Network
- Skyline Home Loans
- Opes Advisors Mortgage Services
- Prospect Mortgage
- Freemont Bank
- George Manson Mortgage
- Wintrust Mortgage
- Summit finding Mortgage
- Cherry Creck Mortgage
- Residential Mortgage Services
- Embrace Home Loans
- Gateway Mortgage Group
- Prosperity Home Mortgage
- SWBC Mortgage
- Scanty National Mortgage Company
- Pulte Mortgage
- NOVA Home Loans
- J. Bradley Mortgage
Repaying the mortgage
Repayment depends on locality, tax laws and prevailing culture. There are also various mortgage repayment structures to suit different types of borrower.
Principal and interest
The commonest way to repay a secured mortgage loan is to make regular payments toward the principal and interest over a set term. This we commonly call (self) amortization in the U.S. and as a repayment mortgage in the UK. A mortgage is a form of annuity (from the perspective of the lender), and the calculation of the periodic payments is based on the time value of money formulas. Certain details may be specific to different locations: interest may be calculated on the basis of a 360-day year, for example; interest may be daily, yearly, or semi-annually.
In the UK and U.S., 25 to 30 years is the usual maximum term. Mortgage payments, which are typically made monthly, contain a repayment of the principal and an interest element. The amount going toward the principal in each payment varies throughout the term of the mortgage. In the early years the repayments are mostly interest. Towards the end of the mortgage, payments are mostly for principal.