Mortgage Loans


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This is the type of loan which is normally secured by visible/tangible property by way of a mortgage, which is a legal instrument. The word mortgage normally means mortgage loan in our everyday lives. Mortgage loans are normally long-term loans, the periodic payments for which are similar to annuity calculations and are calculated according to the monetary time value. The simplest principle is to have a fixed periodic payment over a period of 10 to 30 years, depending upon the market rate and local conditions.
Types of mortgage loans:

The most well-known types of mortgage loans are:

Fixed-Rate loan
The interest rate remains fixed for the entire tenure of the loan.
This term is usually very long (may extend up to 30 years or more).

Floating-Rate Loan
In most of the countries, floating-rate loans are the most common forms of mortgage loans. In such a case, the mortgage loan will have a fixed rate for some time and become variable towards the end of the period.

Most of the common obtainers of such kind of loans are house buyers or property builders. The common practice is to obtain such a loan from a financial institution, like a bank, directly or indirectly through agents. Various fees are charged by lenders while offering mortgage loans. Some of the well-known types are entry fees and exit fees, administration fees, insurance fees, settlement fees and third-party costs, if any.

Most of the lenders give such kind of loans against property to earn interest income. These lenders generally borrow these funds themselves at a particular cost and earn interest which is more than the cost of their borrowing. In some countries, some lenders sell off the mortgage loan to parties who are interested in receiving instalments of cash payments from the borrower.

A very important factor that needs to be taken into account is the risk element of the mortgage loan, that is, the creditworthiness of the borrower. This means that the lender should be in a position to recover some of its original capital, if not all. Such mortgage loans are normally influenced by variable factors like:
• size of the loan
• maturity of the loan
• repayment method

Various other factors influencing mortgage loans are:

1) Interest:
Most mortgage loans are given on a fixed interest basis; whereas some are on variable interest basis where in, the interest rate might change at specified periods (higher or lower).
2) Term:
This refers to the number of years or months of time after which the loan has to be repaid.
3) Frequency and Amount of Payment:
This refers to the amount of repayment and the frequency of such kind of repayments. This is a variable part, since the amount paid for period of time may change or, the amount of payment may be increased or decreased.
4) Prepayment:
Some mortgage loans may carry a limit or restriction of all a portion of the loan or may be payment of penalty to the lender for prepayment.