Buying a home is one of the biggest achievement one can have. Now it is becoming more and more affordable with the help of mortgages. A mortgage is actually a loan that is made to purchase the house and is paid through staggered payments known as amortizations. These staggered payments include interests and fees that serves as payment for the borrowed money. Here are some principles that can help in understanding how mortgage works.
Mortgage as a Secured Loan
Mortgages are loans which are considered as secured loans. Upon mortgage being approved and loan amount being granted, the bank or mortgage lender puts a lien over the property being purchased. A home equity value is earned by the borrower based on the amortization payments that have been made.
Unlike unsecured loans, mortgage loans earn a lower interest rate due to a low risk of recovering the loan amount because of the secured collateral.
As mentioned earlier, purchasing a property through a mortgage is proven to be more affordable for most buyers as it allows staggered payment of a high value home. The affordability can be planned accordingly by the borrower depending on the amount being borrowed and the down payment that is being applied upon purchasing the property. This allows the borrower to adjust the amount that they are willing and able to pay during the term of the mortgage.
Applying for a Mortgage
A mortgage is often granted by a bank or financial housing institution that has been established by the government. Upon applying for a mortgage, the lender will interview the borrower and require some documentation on the buyer’s capacity to pay and credibility to apply for a loan. During the interview, the lender will identify how much you are able to pay, how long you are willing to pay the mortgage and where your source of payment will be.
Once the mortgagor has identified and established your capacity and capability of paying, a loan amount will be granted to you for purchasing your property and/or building your home. Indicated in your mortgage contract would be your schedule of payment or amortization and the fees and penalties.