Mortgage Loan: Things You Should Know About

Purchasing a house is one big life decision. First-time buyer or not, home purchase requires careful planning before taking any action as this commitment is long term. There are still ways you can purchase a house even if your life savings is not enough to pay up the full amount of the property. One of these is through a mortgage loan.

What is a mortgage loan?

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It is a type of borrowing used to purchase real estate or other forms of property such as houses. These borrowed funds will be paid regularly known as equated monthly installments (EMIs)> The amount would depend on the agreement between the lender, usually financial institutions, and the borrower. Mortgage loans, also considered secured loans, are funds availed by providing your assets as collateral. Mortgage loans can be fixed-rate or adjustable-rate depending on the bank you are working with.

Mortgage loans help you to buy a house without having to pay the full amount upfront. You will have the full right over the property once you can repay the loan amount over the period agreed (this could last until 30 years), and the interest rate you agreed on. However, if you fail to make the regular payment, the lender has the right to take away your property. In the case of property foreclosure, you can be evicted from the property by the lender.

If you are planning to get a mortgage loan, you would need to be assessed and undergo the process of underwriting or financial risk assessment. Your assets will be evaluated, as well as your financial capability.


What are the types of mortgages?

There are variations of mortgages both short-term and long-term. You can get a mortgage which is good for 5 years only or a long term payable in 40 years. Remember that you will have to pay for interest rate, so the longer your mortgage term is, the more interest rate you will have to cover.

The fixed-rate mortgage, also called a traditional mortgage, means that the interest rate and the regular monthly payment due do not change over time. The non-fixed-rate or adjustable-rate mortgage means that for some time you will have to pay a fixed rate but it will be increased. There are certain caps in place to make sure that the adjusted rate will not go over the ceiling making it difficult for borrowers to pay back. There are several other mortgage loans you can check. This includes conventional, interest-only mortgages, payment-option adjustable-rate mortgages, government-insured, jumbo and reverse mortgages.

Repayment tenors, document requirements, eligibility, and interest rates differ depending on the type of mortgage loan you will be getting. Mortgage rates are affected by factors such as credit score, down payment, property location, closing costs, loan types, loan terms, and interest rate type.


What are the types of mortgages?

There are several institutions offering mortgages. It could be from banks or credit unions. Given the restriction in movement these days, you can visit the banks’ websites to check their mortgage offering. You could also check online sites such as mortgage calculators to give you some idea of your monthly payment.


What are the mortgage features?

Depending on the lender you are dealing with, the mortgage could be processed in as short as three days granted that you have submitted all the documents. To be eligible you have to be at the right age requirement, with a good credit history and stable source of income. You will have to submit documents such as the application forms, proof of address, and financial capacities such as your payslips, income tax returns, and the documents of the property being mortgaged. Repayment tenors could differ between self-employed individuals and regular employees.


What is a mortgage calculator?

Mortgage calculators help estimate your monthly repayment plans. Using the mortgage calculator, you can put the interest rate, the extent of the loan term, the expected deposit, and the price of the home so you will have a better sense of how much do you need to spare for your monthly payment. There are some online mortgage calculators which include the credit score and your zip code to provide you with a better-estimated amount. The monthly payment due is calculated and broken down into the principal/interest, the home owner’s insurance, and property tax. These are the four compositions of a mortgage payment.

According to Bankrate, when it comes to handling your finances and purchasing a home 28/36 rule should be followed. You should not spend more than 28% of your gross income on mortgage payments and more than 36% on the overall debt.

penny and calculator

Things that you need to consider before applying?

If you are eyeing a mortgage with a better deal rate, you should work on getting a credit score that is above 740. Having a favorable credit score works to your advantage not only for mortgage loans but with other dealings with the bank such as higher overdraft requests. You will also have to consider your long-term plans. It is not recommended to purchase a house and get a mortgage plan for a property you will live in for only five to ten years. Maybe you have to reconsider renting instead of purchasing a new property. Next, check your finances and decide how much you can spend for the downpayment and how much you can pay every month. If paying for the downpayment is already a stretch on your part, not to include the monthly payment yet, you would need to rethink the property you are getting. Perhaps you need more time to save up for the down payment. It is better if you can make more than a 20% down payment for the property you are eyeing for. Also considering your financial situation, identify whether a 15-year term is better for you as compared to 30 years.

You also have to ask yourself, have you done enough research not only on the property but also on the other fees that you will have to manage in the future such as insurance, maintenance, and property taxes. Do you have a strong employment background that could support your application? Qualifying for a mortgage loan means that you have a stable source of funds to make the monthly payment. Since house purchase is such a big decision, the mortgage loan provider should also be taken into priority. Do not jump right away into a decision by just talking to one or two providers. Make time to shop around between financial institutions to determine the best deal for you. Compare the interest rates, check their eligibility criteria, and document requirements.

Within 72 hours after your mortgage loan application has been processed, you will receive a letter that details out the loan estimate. An underwriter will then review and process your application. You mustn’t lose your job while you are being reviewed.

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