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Mortgage

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Mortgages are loans that are used to buy home, land, or other real estate properties. It refers to the process of offering something as a guarantee or collateral against a loan. A mortgage is an agreement between the borrower and the lender, in which the lender has the right to take away the borrower’s property in the case when he fails to repay the loan amount and the interest on it. Generally, the borrower pays the lender every month, but they can agree on a set period for the repayments of the amount with interest and fees.

Mortgage and Loan-

Mortgages and Loans are not similar, people often confuse them as being the same thing. A mortgage is an immovable property like a house, land, or other real estate, which can be used as collateral to secure a loan. On the other hand, a loan is money borrowed from banks or financial institutions for various kinds of requirements, it may be collateral-free or secured.

A loan is a relationship between the creditor, that is, the lender, and the debtor, that is, the borrower, and a mortgage is a type of loan, it comes under the category of types of loans. A mortgage is a secured loan, in which collateral is placed with the creditor to get the loan.

Types of Mortgages-

  • Fixed-rate Mortgages: These are large loans, that can be repaid over a long period. These kinds have a fixed rate of interest, which can be changed only on the refinancing of the initial loan. Under this category, a vast majority of home loans can be seen.
  • Reverse Mortgages: In this, the borrowing of money is on monthly basis, the entire amount is divided in installments and the lender gives the borrower those installments every month.
  • English Mortgages: In this, the borrower has to make the property in the name of the lender, with the legal agreement of having it back in his name once the loan is repaid completely.
  • Equitable Mortgages: In this, the title deed of the property as collateral is given to the lender. This is done to secure the property.
  • Usufructuary Mortgages: In this, the lender can put the property on rent or use it for other purposes, during the loan period. But main rights remain with the borrower only.
  • Balloon Mortgages: This has a fixed rate of interest which can be paid for a fixed period with small payments.
  • Variable-Rate Mortgages: This kind of mortgage offers a lower rate of interest in comparison to fixed-rate mortgages.
  • Anomalous Mortgages: This is a mixture of all other types of mortgages.

The Mortgage Process-

The borrowers would apply to one or more mortgage lenders. Then the lender would look into the borrower’s capability of repaying the loan, which includes the borrower’s bank statements, current employment status, and tax returns. If the application gets approved, the lender will give a certain amount of money for a loan to the borrower with a fixed rate of interest. Once both the lender and the borrower agree on all the terms, they come to a closing. After the closing, the borrower makes a down payment to the lender.

Closing thoughts-

In this era of real-estate being at a rapid increase, having a house or investing in a property is what most people do early in their lives. Mortgage loans can be essential for this home buying process and in French mortgage means ‘death pledge’, which means they die once they are fully repaid.

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