Understanding Mortgage Loan and Payments
For most of us, very few can afford to get a clean title when buying a house. This means that majority of us are employees in an office hence could not afford a onetime full payment when buying a house. This trend has become noticeable since decades ago which compelled some banks and few wealthy business men to offer loans. Today, we call it mortgage loans.
Mortgage loan is the amount of money lent to someone who plans to buy a house but doesn't have the money to make full payment. It pays full payment to the seller then adds interest and other fees for the buyer to pay in a certain span of time by mortgage payments. Before getting a mortgage loan approved, it goes through series of qualifications check particularly the ability to repay. A steady income is necessary to ensure that the borrower will take care of the mortgage payments which can be weekly or monthly terms. In the event of default, the mortgage lender can sell the property through foreclosure. Since the lender holds the title of the house, legally he or she holds ownership of the property which has not been paid yet in full by the borrower. Mortgage payments can be broken down into 2 components. Principal and interest makes up the first part while taxes and insurance is the other sub components.
Initial down payment is commonly considered as the principal. It is a percentage of the mortgage payment which is paid initially. Thus, it signifies ownership of the property. The actual percentage of the principal is dependent on the terms of payment. A long term mortgage loan usually means small principal initially paid. In the event of a long term loan, interest is sure to decrease as well but if summed, will mean bigger amount to be paid. It is added to the monthly or weekly payment.
Taxes are imposed to mortgage payments as an obligation to the state or federal government for acquiring the property. It can be paid in different terms; some prefers to pay quarterly while mostly prefer to include it in the monthly mortgage. The amount of tax that has to be paid depends on the type of payment made to acquire the property. If for instance the property is bought in full payment, a yearly tax can be significantly higher than a property acquired through mortgage loans. The logic is simple; anyone who has the ability to pay in full when buying a house is most likely capable of paying more taxes to the government.
Insurance, on the other hand, is somewhat optional. It is not a requirement especially if the house will be bought in full payment or if there is a genuine relationship between the seller and buyer such as parent to children relationship. In most cases, insurance covers the mortgage loan in the event of a title dispute. It comes in several forms but the most popular is the title insurance. In brief, it gives security to the mortgage lender and the buyer in the event someone else other than the seller claims ownership of the property.
These are the basics of mortgage loans and its payments. Having a clear understanding of such terminologies ensures that we will have a peace of mind upon acquiring a new real estate property.
Mortgage loan is the amount of money lent to someone who plans to buy a house but doesn't have the money to make full payment. It pays full payment to the seller then adds interest and other fees for the buyer to pay in a certain span of time by mortgage payments. Before getting a mortgage loan approved, it goes through series of qualifications check particularly the ability to repay. A steady income is necessary to ensure that the borrower will take care of the mortgage payments which can be weekly or monthly terms. In the event of default, the mortgage lender can sell the property through foreclosure. Since the lender holds the title of the house, legally he or she holds ownership of the property which has not been paid yet in full by the borrower. Mortgage payments can be broken down into 2 components. Principal and interest makes up the first part while taxes and insurance is the other sub components.
Initial down payment is commonly considered as the principal. It is a percentage of the mortgage payment which is paid initially. Thus, it signifies ownership of the property. The actual percentage of the principal is dependent on the terms of payment. A long term mortgage loan usually means small principal initially paid. In the event of a long term loan, interest is sure to decrease as well but if summed, will mean bigger amount to be paid. It is added to the monthly or weekly payment.
Taxes are imposed to mortgage payments as an obligation to the state or federal government for acquiring the property. It can be paid in different terms; some prefers to pay quarterly while mostly prefer to include it in the monthly mortgage. The amount of tax that has to be paid depends on the type of payment made to acquire the property. If for instance the property is bought in full payment, a yearly tax can be significantly higher than a property acquired through mortgage loans. The logic is simple; anyone who has the ability to pay in full when buying a house is most likely capable of paying more taxes to the government.
Insurance, on the other hand, is somewhat optional. It is not a requirement especially if the house will be bought in full payment or if there is a genuine relationship between the seller and buyer such as parent to children relationship. In most cases, insurance covers the mortgage loan in the event of a title dispute. It comes in several forms but the most popular is the title insurance. In brief, it gives security to the mortgage lender and the buyer in the event someone else other than the seller claims ownership of the property.
These are the basics of mortgage loans and its payments. Having a clear understanding of such terminologies ensures that we will have a peace of mind upon acquiring a new real estate property.
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