All About Mortgage Loans

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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. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire purchase price up front. Over many years, the borrower repays the loan, plus interest, until he or she owns the property free and clear. Mortgages are also known as “liens against property” or “claims on property.” If the borrower stops paying the mortgage, the lender can foreclose.

Applying for a Mortgage: The Steps Involved

The process of applying for a mortgage loan can be a stressful. The first thing a borrower should do before going to their bank is acquire a copy of their credit report and check it for errors. If there is any incorrect information, it needs to be disputed as outstanding issues can cause a mortgage application to be rejected or lead lenders to charge a higher rate of interest.

When the mortgage application is complete, the borrower will be asked for a considerable amount of information. That is why the borrower should be prepared to give the lender the following information:

•             Bank information such as the name, address, account numbers, and three months of statements.

•             Three months of investment statements.

•             W-2s, pay stubs, proof of employment and two years worth of income.

•             Tax returns and balance sheets for the self-employed.

•             Debt currently owed, including amounts due and account numbers.

•             Divorce papers, if they apply.

What Is a Mortgage?

Mortgage Definition

•             The word “mortgage” is French in origin

•             And literally means death pledge in their native language

•             Yet the French use a different word

•             Go figure…

Let’s start with the ultra basic: “What is a mortgage?”

Over here at The Truth About Mortgage, this is always the word of the day, as you might have guessed. Fortunately, the definition of mortgage has a somewhat interesting origin.

You’ve undoubtedly heard the word “mortgage” thrown around a million times. But you may not know that in the literal sense, it is defined as a “death pledge” in the French language.

Before You Get a Mortgage

If you’re considering a home purchase in the near future, brush up on your mortgage knowledge. Learn what to do before applying for a mortgage, what to watch for during the process, and how to use a mortgage after you’ve bought your home.

Your Credit

A mortgage is a big responsibility. The bank risks a lot of money, and they have been increasingly cautious since the subprime mortgage crisis of 2007. To qualify for a mortgage, good credit is essential.

Your Budget

Mortgage lenders want to make sure you don’t borrow too much. They look at how much your mortgage payments are relative to your income, ensuring you have the ability to pay. Run your own mortgage calculations to understand what you can afford.

First-Time Buyers

If you’re a first-time home buyer, you may qualify for a special mortgage. Sometimes these are extremely valuable, and sometimes they’re not. Make sure you are familiar with these programs and restrictions on these mortgages.

Safest Mortgages

A 30-year fixed rate mortgage is generally the safest and best bet, especially if you expect to live in your house for more than five years or so. It’s easier to understand and pick apart a fixed rate mortgage.

How long does my mortgage run for?

The life of your mortgage, or how long it takes to repay your loan, will impact the overall cost of your mortgage and the size of your scheduled (monthly, fortnightly, weekly) repayments.

With a longer term, the amount of interest to be paid will be higher, but each repayment will be lower. With a shorter term, your repayments will be higher, but you’ll pay less in interest over time, which can save you significantly when you calculate the overall cost of your mortgage.

How does a mortgage work in Australia?

Many lenders in Australia require a deposit of 20% of the value of the property, meaning they will lend 80% of the value of the property. Some lenders including will allow a 10% deposit, however, the borrower will need to pay for Lender’s Mortgage Insurance and you might be offered a different home loan interest rate.

Typically, a mortgage in Australia is set up for 30 years, and borrowers can choose between a variable rate and a fixed rate mortgage. Some of the popular features of an Australian mortgage are an offset account, redraw facility, split loan, and interest-only repayments.

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