Buying or selling real estate is likely one of the biggest sales or purchases the average person will ever make in their lifetime and it is not always an easy one at that. When making this decision it is very important to be well informed on the nitty-gritty involved so we would like to expand on the term “mortgage loans”.
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 over a period of time. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front.
1. Conventional/Low ratio mortgages
This is a mortgage where the down payment is equal to 20% or more of the property`s purchase price. A low-ratio mortgage does not normally require mortgage protection.
2. High ratio mortgages
Where the borrower is contributing less than 20% of the purchase price of the property as down payment. These mortgages must have mortgage default insurance.
3. Open mortgages
This mortgage allows the ﬂexibility to repay the mortgage at any time without penalty. They usually have shorter terms, but can include some variable rate or longer terms as well.
4. Closed mortgages
A closed agreement that cannot be prepaid, renegotiated or reﬁnanced before maturity, except according to its terms.
5. Fixed rate mortgages
Interest rate for this mortgage is determined and locked in for the term of the mortgage.
In our present-day market mortgages have fast become popular and it is important for a buyer or seller to understand the meaning and types of mortgages that exist in the market so that they are well informed and intellectually equipped when engaging in the latter.
Inter alia, equity release mortgage loans have also hit the market of late. Most banks and ﬁnancial institutions are offering special mortgages referred to as either equity release mortgage loans, home-equity loans or simply second mortgages. It is a type of consumer loan which allows home owners to borrow against their residence for home improvement, extensions, remodelling, or to have access to cash and so forth.
In today’s property market, home mortgage loans are being rejected due to their lengthy processing time which takes too long to complete for the sellers to retain monetary value on full payment of the purchase price. This scenario has left most banks and ﬁnancial institutions with an excess of funds reserved for home mortgage loans. Due to stiff competition in the market and the rejection of most home mortgage loan offers they have become innovative and are putting more emphasis on offering this type of special loan because they can easily approach that segment of the market.
These loans are offered to ﬁrstly, current home mortgage loan clients who have paid more than half the years on their current mortgages and have improved their monthly income since the last processing time. They calculate the difference between open market value and total compound balance on current mortgage loan. The bank or ﬁnancial institution will give out half the value of the difference as home-equity loan.