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Mortgage What is a Mortgage A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. Over a period of many years, the borrower repays the loan, plus interest, until he/she eventually owns the property free and clear. Mortgages are also known as liens against property or claims on property. If the borrower stops paying the mortgage, the bank can foreclose. In a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the homes tenants and sell the house, using the income from the sale to clear the mortgage debt. Mortgages come in many forms. With a fixedrate mortgage, the borrower pays the same interest rate for the life of the loan. Her monthly principal and interest payment never change from the first mortgage payment to the last. Most fixedrate mortgages have a 15 or 30year term. If market interest rates rise, the borrower’s payment does not change. If market interest rates drop significantly, the borrower may be able to secure that lower rate by refinancing the mortgage. A fixedrate mortgage is also called a “traditional mortgage. With an adjustablerate mortgage (ARM), the interest rate is fixed for an initial term, but then it fluctuates with market interest rates. The initial interest rate is often a belowmarket rate, which can make a mortgage seem more affordable than it really is. If interest rates increase later, the borrower may not be able to afford the higher monthly payments. Interest rates could also decrease, making an ARM less expensive. In either case, the monthly payments are unpredictable after the initial term. Other less common types of mortgages, such as interestonly mortgages and paymentoption ARMs, are best used by sophisticated borrowers. Many homeowners got into financial trouble with these types of mortgages during the housing bubble years. When shopping for a mortgage, it is beneficial to use a mortgage calculator, as these tools can give you an idea of the interest rates for the mortgage youre considering. Mortgage calculators can also help you calculate the total cost of interest over the life of the mortgage.

Advantages and Disadvantages of Mortgage Refinance Refinancing is endow with a prospect to correct a mistake you made in taking out your existing mortgage or simply make a good mortgage even better. Either way, you'll increase your short- and long-term monetary precautions and increase the probability that hard times won't put you at risk of losing your home. Advantages of Mortgage refinancing: Before You Start remember that refinancing to reduce debt can be a smart move, but refinancing in order to borrow more for consumer purchases (car, vacation, etc.) could set you back significantly. Read the fine print: on your current mortgage to learn whether you'll be assessed penalties or fees for "getting out" of that loan early. Make sure: you know whether you have a fixed or variable interest rate and what the terms are.  Cash-out Refinancing: is a mortgage that allows you to take advantage of dues in excess of what you currently owe. The borrower qualifies with their current home equity; they can refinance with a loan amount larger than their current mortgage and pocket the cash discrepancy. Home Equity Loans: are in addition to your original mortgage and are also known as second mortgage. With a home equity loan you will receive a huge amount that gets deposited into your bank account for you to distribute consequently. Home equity line of credit: Home Equity Line of Credit is abbreviated as HELOC. This refers to a loan in which the lender agrees to lend a maximum amount within an agreed period. The borrower is not advanced the entire sum up front, but uses the line of credit to make use of sums totaling no more than the amount. Disadvantage of refinancing: The risks from your original mortgage are still present, and a few new ones come to the surface for instance:- Overpaying on closing costs: tricky lenders can tack a number of unnecessary and/or overstated fees onto the cost of your mortgage, some of which they may not disclose up front. Overpaying on interest because you want no closing costs: A refinance usually does not require any cash to close, but one way lenders make up for this is to give you a higher rate Of-interest Losing equity: The part of the mortgage that you've paid off, or your equity in the home, is the only part of the house that's really yours. This amount grows with monthly mortgage payments until, one day; you own the entire house back and can claim every penny of the income if you choose to sell it. By doing a cash-out refinance rolling closing costs into the new loan, or extending the tenure of your loan, you break that entitlement of your home that you actually own. Negatively impact: in the long run. Refinancing can lower your monthly payment, but will often make the loan more expensive in the end if you're adding years to your mortgage. Refinancing has the potential to help you reduce the costs associated with borrowing money to own a home; it is not necessarily a strategy will makes sense for every individual in every situation. So before you make a commitment to refinance your mortgage, it's important to do your homework and determine whether such a move is the right one for you.

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