Properties are secured by mortgage to bind the borrower to a predetermined sequence of loan payments. A borrower can obtain mortgage financing from a financial institution such as banks. Components such as loan size, loan maturity, interest rate, and loan repayment method differ significantly from one creditor to another.
Mortgaged properties place restrictions on the use or disposition of the property, such as selling the property before closing on the outstanding debt. In countries where demand for home ownership is colossal, robust domestic markets have developed. The US and UK economies rely heavily on mortgage financing.
In the US, borrowers obtain mortgage financing by submitting a loan application along with documents related to the borrower’s credit or financial history to the bank’s underwriter. Alternatively, the borrower can submit the same documents to a mortgage broker, who then evaluates the information and provides the borrower with the best possible options for financing the mortgaged property. Unsuspecting borrowers often fall victim to unscrupulous lenders or brokers who take advantage of the borrower’s plight and use the situation to their advantage, while removing mortgage liability on the property and forcing homeowners into foreclosure.
Lenders take into account the key factors that influence their decisions regarding loans to a borrower. These factors include credit report, outstanding credit, credit card bills, down payment, income, interest rates, available funds, and debt-to-income ratio. Additionally, supply and demand, interest rates, demographics, and economic growth all relatively influence the mortgage industry.
Home loans are available to borrowers at fixed and adjustable interest rates.
Regardless of the change in the national interest rate, the fixed interest rates remain unchanged. Used as part of an introductory offer, they are typically replaced with fixed rates or higher variable rates upon successful completion of the six-month loan term. The alternative to changing a fixed interest rate is through refinancing: getting a lower fixed rate or a variable rate on the new loan agreement. The fixed interest rate provides security against rising national rates, borrowers have the advantage of paying a comparatively lower rate if they are locked into a fixed rate lower than the current national rate. It facilitates budgeting, if the sequence of loan payments is unequivocal. The downside, however, is that when national rates are lowered, borrowers end up paying higher interest on their home loan.
Variable rates, by contrast, fluctuate in response to changes in national rates. It is directly proportional to the national rates, therefore, when the national rates increase; variable rates go up and when they go down so do variable rates. It is the most common type of interest rate used for small loans and credit cards. With variable rates, predicting a lump sum payment is difficult, it could increase to several times the payment that could have been made in a matter of a few months. However, the monthly payments remain fixed and the final payment may be a different amount due to the fluctuating interest that has been increased on the loan.
Fixed and variable interest rates are popular when it comes to mortgage financing, although there are other types of loans, such as balloon loans and government-backed loans, that also offer both types of interest.
