Mortgage financing simply refers to the lending of money to business entities and individuals, who want to secure properties. The borrower is expected to return the finance through timely and consecutive installments over the next few months.
If you want to buy a house and do not have the cash required for the venture, mortgage financing may be an option. Before you deal with a private lender company offering mortgage financing, it is important to understand the basic concept behind mortgages.
What is Mortgage?
Mortgages are legal agreements which state the conditional right of ownership of a property or particular asset by its owner (the mortgagor) to the lender (the mortgagee) as security for a loan. The condition of this arrangement is that the conveyance of the title will become void after the borrower repays his debt.
Mortgages are legally enforceable if the arrangement is for a defined period. The agreement is effected using a security document called “Mortgage Bill of Sale.”
Why You Should Choose Mortgage Finance
Mortgage finance is one of the most common debt instruments for multiple reasons. One of the most lucrative advantages is its lower interest rate. As the loan is secured, borrowers enjoy low-interest rates. Many people prefer this method of financing as the procedure is straight forward and a standard format must be followed. In addition, these loans have a reasonably long repayment period.
For real property, equipment, vehicles, etc., possession and right to use mortgaged items remain with the mortgagor. However, the lender can take possession at any given time in order to protect his security interest.
Types Mortgage Finance
It can be classified into many types depending on the collateral that borrower provides. The 3 most common types of mortgage finance are:
- Real Estate Mortgage
- Chattel Mortgage
- Second Mortgage
In Real Estate Mortgage, you can mortgage any legally owned property. Real property such as land and buildings are most commonly mortgaged.
In Chattel Mortgage, you can mortgage your personal property. The list may include home appliances, jewelry, and cars.
Second Mortgage is a way to get money by mortgaging a property which is already associated with another mortgage. Real estate laws do not require the holder of the first mortgage to agree to the making of a second mortgage.
Before going through any mortgage financing application, you should prepare yourself and choose the type of mortgage financing that best suits your needs and financial capabilities. There are many options and you can compare them and then decide which one is more beneficial. Be careful as even the slightest difference can increase savings in the long-run.
Loan Financing Options
Companies will offer you 2 two loan financing options:
- fixed rate mortgage
- Adjustable rate mortgage
Fixed rate mortgage is deemed as the better option as you will pay an unchangeable payment for all the installments. There is less uncertainty in this option. The adjustable rate mortgage has its own benefits and drawbacks too. Before taking the decision, do all necessary calculations and compute whether you will be able to pay back the loan on time.
Can You Return the Money?
There is no doubt that mortgage financing is a great way to get more finance but before you get too involved, assess whether you will be able to return the lender’s money. Do prior calculations and consider sources of income for the following months. Some people like to prepare a budget and identify monthly obligations to find out how much of their earnings they can set aside to repay the loan.