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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.

5 Questions Answered About Mortgage Loans We are living in a time when there are frequent economic slumps, high rate of unemployment and foreclosures. Is buying a new home or property a wise move in such turbulent times? Your decision to invest in a new home depends on your financial situation. Then, if you are considering mortgage loans at all, its natural you will have a lot of questions before applying. The most crucial aspect is choosing the right option and at the best rate possible. Read this article to get your questions answered which will help you make an informed decision. 1. What are the Types of Mortgages? There are two kinds of it fixed rate and adjustable rate mortgages. The former is for those who want to know the amount they are required to pay per month, during the entire loan period. When it comes to adjustable mortgage payments, your payments will depend on the interest rates. The interest may be lower or higher and you need to make payments accordingly. 2. Where to Look for? When you are searching for a financial institution to meet your house buying needs, its important to opt for lenders who provide services and rates that match with your financial situation. Here are some of the options: Banks: Most people prefer banks where they have their savings or checking accounts. Credit Unions: Their rates are lower than bank rates and you can avail it if you are a member or want to become one. Saving and Loan Associations: You can also opt for saving and loan associations if it suits your needs. Mortgage Brokers: Many a times, brokers offer better rates as they have contacts with a good number of lenders. 3. How Much You Should Borrow? Experts suggest that your monthly payment, i.e. principal amount, rate of interest, taxes and insurance, should be less than 33 percent of your total monthly income. Most banks and other lenders have calculators on their official websites to help you determine how much you can borrow. 4. What Amount You Can Afford as Down Payment? If you can make a huge down payment, it has its benefits. There are two distinct advantages one, it will be much easier for you to get the loan and secondly, it will lessen your monthly payments. Depending on the nature of the mortgage, lenders would need about 5% to 10% of the mortgage amount as the down payment money. Its important to note here that you will also be required to pay for the closing cost. 5. How Must You Apply? Do not rush when you are applying because you need to be patient and make a list of documents needed for approval. Read everything very carefully before signing the final contract. As far as mortgage applications are concerned, they require lots of documentation from you and a co-borrower, if there is one. Here are some of the personal details that you need to provide to the lender. These include your name, date of birth, social security number, current residential address and phone numbers. Besides the above, you should also furnish information such as: Details of your employer: Name, address, contact info, and your position in the company for the last two years. Last 2 months pay stubs Bank account details of last 2 months account numbers and available balances Tax related information W-2 forms as well as tax returns for the preceding two years Personal property details such as cars, furniture etc. Any other information about assets Credit information, including names of all creditors Amounts due on existing loans and monthly payments If you are a student or self-employed, you will have to provide additional information If you have any further queries or doubts about mortgage loans, consult a professional lender near you. Author Bio: Albert Hanna is a real estate specialist who has negotiated lots of mortgage loans in Santa Ana. Besides assisting people in great financial mess, he also loves writing about real estate, mortgage loans and foreclosures.

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