Words “mortgage loan” today are on lips of almost all people who use financial services. This is understandable because housing issue from year to year becomes only more acute. But still, what is shortest and most comprehensive answer to the question, what is a mortgage? The answer is: this is acquisition of borrowed money from residential or non-residential real estate (and only real estate) with the condition of pledging this very real estate to the person who agreed to give loan. Mortgage is always associated with a pledge (but not every pledge is a mortgage, of course!) and bank mentioned above represents 99.9% of all financial transactions.
Bad credit mortgage loans (even for bad credits) are form of collateral that guarantees the lender the return of borrowed funds. For the owner of the property, the security means the right to use the mortgaged property reserved for him. If the borrower fails to fulfill its obligations for any reason, the credit organization will have the right to realize the mortgaged property to cover the debt.
Term mortgage and mortgage lending have different meanings. The concept of mortgage implies ownership. In case of mortgage lending for the purchase of real estate, the purchased property becomes a mortgage (pledge) for lender.
Home mortgage loans are issued for consumer, housing and commercial needs. And in each case, the beneficiary wants to receive a guarantee not only for the return of the disbursed money in full, but also a guarantee for obtaining interest income as a payment for the service of issuing money. Since the mortgage is in the sector of large loans, one stable average income of the client will be small. What is the easiest thing to do here? And the easiest way to put a condition is that the client bought the property with the money he immediately pawns the bank.
How do mortgage loan companies work?
In case of violation of the contract by the client, the bank takes the mortgaged property into its full ownership, thereby returning its money. If we consider that real estate only becomes more expensive with time, then losses are more than compensated. This is the “backbone” around which the entire mortgage business is built.
Main branches of the mortgage business
Further there are two large branches – housing and commercial mortgage. In terms of the number of requests and the range of clients, housing mortgages far outpaced those issued for the purchase of industrial, retail and other non-residential areas. But also because the schemes for issuing such a loan have now been worked out, standardized and have many variations (mortgage programs). Best mortgage loans, in turn, can be divided into major branches:
- standard mortgage programs;
- social mortgage programs;
- special segment of housing loans;
- ordinary housing loan.
Standard mortgages most. They are designed for a wide range of people who, by their material position, are at the lowest level of the middle class, that is, they have a stable average income and, most likely, a small and good credit history (several successfully repaid consumer loans). Despite the variety of conditions offered, ordinary housing loans are united by a number of features.
The cost per square meter of housing, and hence the size of the mortgage, is determined from an objective analysis of the local real estate market at the moment.
Interest rates are set with an eye to competing organizations. Higher rates will provide greater profits and, consequently, greater survival.
Current mortgage loan rates are different in this or that financial institution.
Works pretty hard selection of potential borrowers. The client must meet the requirements of the bank according to his financial status
Features of interest rate
You should always carefully study type and characteristics of rate. Mortgage loan rates today can be fixed or floating. Bank does not have right to change fixed home mortgage loan rates throughout the term of mortgage agreement. Floating may vary. However, now almost all rates are fixed, which gives the client some sense of stability and financial security. True, because of this, the same monthly payments are only annuity payments, i.e. unchanged. While differentiated payments as loan is repaying are getting smaller. But banks do not make such concessions. Customer may choose best mortgage loan rates and agree these ones with creditor.
Mortgage is a contract in which a borrower takes an apartment from a lender (bank) or other housing on credit, and it is also a pledge. This is a good chance to buy an apartment or other type of housing for people who do not immediately have the amount of money sufficient for such a serious purchase. To start, you only need to pay a down payment. Mortgage involves the initial payment in a certain percentage of cost of housing. Having paid the required amount, the person becomes the owner of the apartment and gradually repays the debt, already living in a new good-quality housing.
Main advantages of mortgage
Refinance home mortgage loans have a number of some beneficial sides:
- you can use the purchase immediately after making the initial payment, you do not need to collect the full amount;
- mortgage involves the possibility of planning a family budget, because loan payments are made on a monthly basis;
- in addition to purchased housing, the bank does not need to provide an additional deposit.
Answers for frequently asked questions:
- Is it possible to get a loan if there is a low official salary?
Yes, it is possible. While the issue of granting a loan is being resolved, some banks are more concerned not with the official salary but with the solvency of the borrower.
- Is property insurance compulsory for online mortgage loans?
This issue is governed by the documents of each bank separately. Most often, a mandatory registration of a life insurance policy sudden disability of borrower are required. When a mortgage is issued, compulsory insurance of the property itself is also widely practiced.
- What is the procedure for buying a home with a mortgage?
- selection of a credit facility (housing);
- collecting necessary documents and submitting them to the bank;
- when buying home in secondary market an expert assessment is made;
- bank determines date of the transaction;
- during transaction they sign a contract of sale, provide life insurance for the borrower, also insure the housing itself.
When buying in the primary market, insure the risk of losing property rights. Housing is pledged to the bank, and the borrower becomes its owner. With the help of a mortgage loan, you can buy property-owned apartments (secondary housing market), apartments during the construction phase of the primary market, and privately owned houses.
To buy an apartment today, you must have a sum of money that is at least 5% of its value (or up to 30% depending on the requirements of the lender). The remaining amount required for the purchase of housing, i.e. mortgage loan gives you a bank. In some cases, the bank may provide a loan in the amount of 100% of the value of the apartment. The loan is secured by the apartment itself, which will be pledged to the bank until you have fully repaid the loan, i.e. do not pay the loan amount and interest on it. The apartment is once issued in the property of the borrower. You can live in it, be registered, but you have no right to sell it, exchange it or rent it out until you pay to the bank.
House mortgage loan program in each case must be chosen individually, taking into account the many factors that accompany the conduct of mortgage lending transactions. So, according to experts, the choice of the bank engaged in mortgage lending is one of the most important moments.
Requirements and restrictions for the borrower
For a positive decision on the provision of a loan, it is usually necessary that the monthly payments do not exceed 50% of the borrower’s monthly income (total family income), otherwise, the bank will need a guarantee from third parties.
Only borrower, sometimes the spouse, is registered in the mortgaged property until the full repayment of the loan debt and the interest set by the loan agreement. For this period in the acquired property should not be registered minor children. Illegal redevelopment of housing is prohibited.
Massive use of credit services among the population has a positive effect on the development of the country’s economy. But ordinary lending can create risks of non-payment, and the use of collateral provides good guarantees. In addition to the interests of the state, needs and populations are no less priority. Real estate slope to a sharp rise in price, therefore, to acquire it through savings is extremely problematic. For this reason the payment of debt in parts is of one of the most optimal options. Of course, there is a risk of losing value, but it is not known how inflation will behave in the time it takes to accumulate money to make a large purchase.
As already mentioned, a mortgage is a pledge. But not every pledge is a mortgage. The fact is that a mortgage is a pledge that is public in nature. When real estate mortgages, the bodies registering the transaction, make appropriate records that the property is encumbered. Any interested person may request an extract from the State Register of rights to real estate and transactions with it. In this statement, if the property is mortgaged, it will necessarily indicate that there is charge: pledge.