A mortgage is a kind of personal guarantee offered by borrower by pledging his property to the lender against a monetary loan. The property is legally pledged to the lender who can realize his loan by selling it if the borrower fails to return the money within a specified period of time along with interest. Simply stated, mortgage is a method of using property as a security for payment of a loan. Usually the buyers of the new houses secure the loan by mortgaging the house they buy to the money lenders.
Mortgages come in various sizes. Each kind of mortgage has its own advantages and disadvantages. The amount of loan and the quality of the conditions attached with it depend upon your financial status and creditworthiness as revealed from your previous loan payment records with the credit rating agencies.
Do your Homework
You must do your home work before applying for mortgage loan. The most important and the recurring charge on your loan is the interest on your loan amount. Each lender has his own rates of interest which can be fixed and variable. The difference in the rate of interest may amount to as much as 1%.
The money lender agrees to pay you the loan for a specified
period of time called the mortgage term. If
you decide to pay him back before the expiry of the mortgage term, you
may have to pay some penalty. The reason is that the lenders too usually
borrow money from the financial institutions for an agreed term and the
rate of interest. The violation of the agreement costs them damages or
penalties which they transfer to their borrowers if they leave them midway.
Some lenders decide to re-mortgage
their property due to the lower rates from the new lenders and try to
pay off the existing lenders. For example, if you decide to leave your
existing lender midway, you may have to pay, say, 5% of the money you
still owe them. You must, therefore, study the terms and conditions associated
with your mortgage.