A mortgage loan is the loan which is mainly used
by the purchasers to buy the property or to raise the funds for any purpose. In
this mechanism it allows the lender to take the possession and sell the secured
property. The lender can be any financial institution it can be any bank, or a
building society depending on their country. In mortgage loan the method of
paying loan, interest rate may vary considerably. Mortgage borrowers which can
be any individuals mortgaging their homes or they can be businesses. In other
countries markets have been developed there where the demand of the home
ownership is highest.
Mortgage loans are generally structured for the
long term loans and it is calculated accordingly to the time value of money. Mortgage lending is
considered to be the primary mechanism to finance the residential property and
commercial property which is used in many countries. Basic arrangements would
require monthly payments for ten to thirty years. Lenders raise the funds to
earn the income of interest and borrow funds by taking the deposits. In many
other countries people sell the mortgage loan who wants to receive cash
payments in the form of the security from borrowers.
There are many types of mortgages which is used
world wide and along with it several factors defines the characteristics of the
mortgages . They are as follows – interest , terms , payment amount and prepayment .The two main types of loan are the Fixed rate mortgage and Adjustable
rate mortgage. Adjustable fixed rate is
also called floating or variable rate and in some countries such United States
floating variable is common.
· In adjustable fixed rate , the interest rate
will be fixed for some period of time and then will adjust up or down to market
index.
Types of
Mortgage Loan
· Loan to
value : Using mortgage loan for
purchasing the property borrower makes the down payment means it contributes
portion of the cost of property . Loan to value means the size of the loan
against the value of the property.
· Value :
1. Actual value is the purchase price of the property . If property is not
purchased then this information will not be available. 2. Appraisal value is
often the requirement for a lender to obtain an official appraisal . 3.
Estimated value is often use as internal estimates when no official appraisal
exists.
· Payment
and debt ratios : Common measures include payment to income means mortgage
payments as percentage of net income. Debt income include all debt payments or
mortgage payments.
· Conforming
mortgages : If you are having conforming mortgage then it will be easy to
find a lender and here it does not matter whether it is a fixed rate loan or
adjustable rate loan.
· Foreign
currency mortgage : This mortgage is common and enables lenders to lend in
stable foreign currency ,here the borrower will take currency risk and
therefore they need to convert higher amount of the domestic currency to repay
the loan ..
