How Mortgage Operates
There are ways in which mortgage works for people. First to get a mortgage, you must be a working class or a business person before you can go ahead to borrow any money so to be sure of how to refund the money with interest.
Definition of Terms
Down Payment: This is a stipulated amount placed by lenders to customers to pay in order to buy a new home. The amount is mostly place at 20%. A customer who is unable to pay up to the 20% given, will be forced to pay private mortgage insurance along with usual monthly charges.
Mortgage Terms: This term involves the timeframe given to a customer pay off the loan given to them as mortgage. Currently, the total number of years given to a customer to pay of his or her mortgage is 30years.
Interest Rate: This is a stipulated amount charged by a lender from the total amount given to a customer to buy a home.
Type of Mortgages
There are many types of mortgages a lender could offer to a customer but for now, we will discuss on three major ones then later we highlight the rest.
Prime Mortgage:This is one of the mortgages highly recommended by many as it meet the standards set by 2 major government-sponsored enterprises, namely; Federal National Mortgage Association and also meet the standards of the Federal Home Loan Mortgage Corporation. These two government-enterprises are responsible for the provision of a secondary market in home mortgage by buying loans from the real lenders. A report from the Federal Reserve, describes a Prime Residential Mortgage as “A mortgage for a borrower whose credit scores are 740 or higher, whose debt-to-income ratios are lower than average and whose mortgage features the standard amortization schedule common to a fixed-rate or an adjustable-rate mortgage.”
Subprime Mortgages: This kind of mortgage is strictly meant for customers with very low credit rate and have FICO credit scores lower than 640. This kind of loans come with high interest rates as a result of the increase risk at the lender’s side.
Alt-A Mortgages: In this kind of mortgage, a customer do not require to present much documents as evidence of his or her income, expenses or assets.
Other types of mortgages are discussed below
Repayment Mortgages: This involves the repayment of most of your interest along with capital borrowed as mortgage. A stipulated time of Twenty Five years is usually given to a customer to pay back all the funds borrowed so to get back his or her home. Sometimes, a customer mustn’t wait till Twenty Five to payback what he or she borrowed but rather could get the money elsewhere and payoff the debts so to get his or home back.
Interest only Mortgages: This is a kind of mortgage where you payback the interest on monthly bases within a stipulated time. After this period, you are expected to pay back the capital using the funds you were able to save within the period.
Fixed rate Mortgages: In fixed rate, the rate of a customer’s mortgage is fixed within a given period of time. In this method, a customer is aware of the amount he or she is to pay within the period given and no matter the changes in the interest rate if other mortgages rates go high, he or she will not be affected. But the only disadvantage of this kind of mortgage is that when the rate of other mortgages go down, you will be faced with higher rates.This kind of mortgage is usually given to first timers.
Variable rate Mortgages: In Variable rate Mortgages, the interest rate fluctuates. Here when it comes to do with payment of interest rate on standard variable rate, you should expect changes anytime despite the absence of base rate moving while similarly base rate might decrease but your mortgage rate remains the same.
Tracker Mortgage: In this kind of mortgage , the amount you pay for mortgage rate, will be placed as a set interest rate higher or lower than the base rate. That is when base rate increases, your mortgage rate will increase along and when it drops, your mortgage rate drops as well.
Discount Rate Mortgages: This is one of the cheapest but the issue about it is that when they are connected to the SVR, the rate is bound to increase when the SVR increases and decrease when the SVR comes down.
Capped Rate Mortgage: In capped rate mortgages, you will have an idea about the limit of your repayments and also have the privilege to benefit when the rate decreases.This is almost the same with the Variable Rate Mortgage but it differs to some extent.
Cashback Mortgage: Cashback Mortgage as to do with when get a mortgage and the lender pays you a certain amount as percentage of the mortgage. It may sound great but you have to be careful by checking the interest rate given to.
Offset Mortgage: In this kind of mortgage,a customer’s savings account is connected to the mortgage in a way that certain amount is deducted from his or account for settlement of debts owed.
95% Mortgage: This kind mortgage is meant for customers who are interested in going for small deposits such as going for 5 percent deposit. The disadvantage part of it is that with such deposit, a customer could be at of falling into negative equity should the price of home decreases. They need fall only 6% and suddenly your home is worth less than your mortgage. As a result of the risk involved,a customer will be charged with high mortgage rate.
Flexible Mortgage: With Flexible mortgage,a customer is given the privilege to pay more than the stipulated amount given to him or her every month. With this method of repaying back the loan, a customer is given the opportunity to have a break of the payment or even pay lesser than the given amount every month.
First Time Buyer Mortgage: This particular mortgage is strictly meant for those who wants to go into mortgage for the first time. With this kind of mortgage, those with less experience can star from here then with time they could get enlighten.
Buy to Let Mortgage: This kind of mortgage are strictly meant for those into the business of buying a home to rent it out. They don’t buy the home to live but they use it for business by renting it out.
How to Find The Best Mortgage Rates
Finding the best mortgage should be the first step for anyone who wishes to go into the business. You don’t just wake up one day to buy a home using mortgage, first you have to take your time to review which mortgage rate is best for you. In finding the best mortgage, a customer is advised to take the follow steps listed below;
- Prepare for the Task Ahead on Time:Before you begin the journey to buying yourself a home, you must start planning your savings ahead of time so to avoid accumulated depth that might eventually result to lose of home and funds as well.
- Look Beyond the Interest Rate Given:Never go in mortgage simply because of the interest rate alone, rather look out for those penalties should something go wrong along the line.
- Private Mortgage Insurance (PMI):Having a clearer perception of PMI will go along way in assisting you when you get a mortgage. In this system, a customer is regarded as a high risk when his or her down payment is below 20%. Under this condition, such customer will be advised to carry a private mortgage insurance.
Mortgage is one of the major steps to owning a house in developed countries but before you thing of get a mortgage, you have to plan ahead with your savings so that when it comes to do with paying back your loans, you won’t break the rules which may likely attract a penalty or result to the lost of your home and money. On this note, it is always advisable to carry out a thorough research on mortgage before going into it.