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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”.

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 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.

Types of mortgages:

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.