subject: The Fundamentals of Mortgage Loan [print this page] The Fundamentals of Mortgage Loan The Fundamentals of Mortgage Loan
Mortgage is one of the most commonly heard words in financial world, you can always hear that 'mortgage is hard to get', 'mortgage rates have risen' etc. So what exactly is a mortgage? Read on to discover the basics of this type of loan and see whether it's something you'd like to commit yourself to.
Purpose of mortgage
The reason for existence of mortgage is fairly simple: the vast majority of people don't have enough money to pay for their property by cash. On the outside the whole process is a win-win combination, but is it really? You do get to buy the property which would otherwise be far out of your reach and bank gets it's share of money from interest. If you look closer, however, a mortgage is a lifelong obligation. Lifelong because when you consider that applicants typically become eligible for the loan in their mid twenties due to the requirement of decent, regular income; mortgage gets spread over 25 to 30 years - it becomes clear that by the time you repay the property in full the retirement is just behind the corner.
Mortgage application process
In order to be considered for amortgage, the applicant needs to meet a set of criteria. First of all, brokers will not negotiate with you unless your annual income is around 20% of the property sale price, and that's assuming a 20% initial deposit paid in full. In other words, the maximum amount of loan is around 4 or 5 times the mount of your annual wages.
Then comes the credit score which determines deals and preferential rates of interest available to you. Bad credit score will definitely rise the true cost of mortgage and have you thinking about refinancing in the near future. The rule of thumb is: if your credit history is bad and you're not desperate to buy the property as soon as possible, repair the score and try again later.
Mortgages repayments are typically spread over 25 to 30 years depending on the income and age of applicant - people getting close to retirement will not be granted such a long term.
Responsibility for timely payments
With power comes responsibility. Not only that, in fact if you neglect your mortgage payments or find yourself in a very bad financial situation where you can't afford to pay for mortgage - your home will be repossessed. That's the main reason why people prefer to rent rather than buy their own property - the weight of responsibility is simply too heavy.
