Mortgages are loans secured by a borrower’s property. When a mortgage is secured, the lender must provide collateral, usually in the form of property, to secure the loan. This usually means that the lender owns or has access to the land on which the mortgaged property is situated. Mortgages are usually taken out for fifteen years and have a term of either two or five years. Mortgages can also be short-term financing.
Homeowners need to make mortgage payments on a regular basis, and this usually means every month. The payment amount is determined by the value of the property, plus interest and other fees. In order to make mortgage payments, homeowners must have funds available in the escrow account. Escrow accounts may be in the form of separate checking accounts or they may be combined as part of a homeowner’s insurance plan. Escrow accounts must be maintained in good standing. Any balance in the escrow account should be transferred to the mortgage lender once a year to avoid the possibility of foreclosure.
Interest rates are one of the most important factors in determining the cost of any mortgage. Home owners need to shop around for the best deal. Mortgage lenders look at your credit record, your ability to make payments, and your home’s location when determining the interest rate. If you have a low credit score, or if you plan to pay off your mortgage early, you may be able to negotiate a better interest rate.
Mortgages come in different types, including interest only, negative amortization, adjustable rate loans (ARM), and fixed-rate loans. There are advantages and disadvantages to all types of mortgages. Mortgages can be purchased through a mortgage company or broker or through a bank. Most home loan products are available from local banks.
In general, mortgages that are purchased through a bank or mortgage company require a minimum deposit. This deposit is refundable when the loan matures. Mortgages purchased through brokers or independent agents generally do not require a minimum deposit. Some lenders require a minimum appraisal or processing fee. When paying a commission to an agent, the buyer pays this fee as well.
One of the advantages to buying mortgages is that they can be modified or added to over time. When a mortgage is bought through a lender, the seller retains the entire lien on the property. The seller may sell the house but does not take ownership of it until the closing date. Buyers typically do not retain ownership of the property during the first year they own their home. They pay the monthly mortgage payment and make other payments toward the loan balance until they own it. A few lenders allow the buyer to have some or all interest paid on the loan balance for a designated amount of time.