Many people aspire to buy and own homes, but the major challenge is that they often lack the financial capacity to purchase their desired properties. While this problem is common among many people, the good news is that there is a viable option called mortgage that can help them become proud homeowners. As such, this post explains the meaning of mortgage and it also outlines other crucial things that you need to know about mortgages.
What is a Mortgage?
A mortgage is a special loan that you get from a bank or any other financial institution and it is specifically meant to help you purchase a home. The home you intend to buy secures the loan so that the bank can repossess it and sell it if you default on loan repayment. In other words, before you get the mortgage, you agree to certain terms and conditions that include an initial down payment, repayment period as well as interest rates. There are different types of mortgages and the most common form is a fixed mortgage. As the name implies, fixed mortgages can have fixed periods that can span several years such as five years fixed, 15 years fixed, as well as a 30-year fixed. Some can even be 40 years and the advantage of a fixed mortgage is that it allows you to spread payments over a long period to reduce monthly payments. The interest rate is fixed over the entire duration of the mortgage.
The other common type of mortgage is the adjustable-rate mortgage (ARM) which starts with a fixed interest rate for a specific time. Afterward, the interest rate can fluctuate according to market forces. Therefore, monthly payments cannot be predictable when you choose this type of mortgage. The fluctuating rate can affect your capability to pay the mortgage. A mortgage can be a good method that can catapult you to becoming a homeowner, but it also comes with consequences. If you are looking for helpful tips and advice, you can consult qualified mortgage advisors who have full knowledge about how mortgages function. You should not just follow hype when you decide to apply for a mortgage.
Who Needs a Mortgage?
If you are a prospective home buyer, but you do not have cash ready to buy the property, then you are a suitable candidate for a mortgage. Both individuals and businesses can acquire mortgages to purchase properties but they do not pay the entire price in one goal. The borrower is required to repay the loan including interest throughout the mortgage until they become rightful owners after clearing all payments. If you are buying residential property, you pledge the house to the bank which becomes the interim owner until you clear your loan repayment. If you default on your mortgage payments which is also known as foreclosure, the lender has the right to evict you and they can sell the house to clear your mortgage debt. Therefore, if you decide to get a mortgage, you must be sure that you can afford the monthly payments.
Who Qualifies for a Mortgage?
Wondering if it is easy to get a mortgage? The answer is twofold since it can be easier for some to get a mortgage than others. However, your success mainly depends on your previous record regarding your credit rating and it is also determined by your current situation. If you have a clean credit record and a notable income structure, it can be easier to secure a mortgage. The process can be complicated if you have adverse credit or your income structure is unclear. All the same, this does not necessarily mean that you do not qualify for a mortgage. Other lenders can extend mortgages to borrowers with adverse credit records and others can decline.
Choosing The Right Mortgage
There are different types of mortgages as you have seen so you must choose the right facility that you can manage. Before you settle for a particular mortgage, you must have an idea about the monthly payments as well as the total interest that you should pay for the overall mortgage. You can do this by using a mortgage calculator that can help you calculate the total cost for the property.
A mortgage is different from other types of loans in that it is mainly intended to finan