What is Mortgage Loan?
Posted: Jul 25, 2022
What is Mortgage Loan?
A mortgage loan, or simply mortgage, is a loan used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property (collateral) if the borrower defaults on their payments.Mortgages are calibrated over different terms of time depending on country; common durations are 15 years or 30 years in the U.S., while in Europe they tend to be much shorter periods such as 3 years. In the U.S., Canada, and most countries of Latin America and Asia, mortgages are the primary mechanism used to finance private ownership of residential and commercial property. Avant Mortgage Singapore is the best in SG
Mortgage loan basics
A mortgage loan is a very common type of loan, used by many individuals to purchase residential property. The lender provides the borrower with the funds needed to buy the property, and in exchange the borrower agrees to repay the loan over a set period of time, usually 15 or 30 years. Each month, a payment is made from the borrower to the lender which consists of interest on the outstanding principal amount, and often also includes an amount which reduces (or amortizes) the principal amount outstanding.
In some cases, especially in countries where property prices have been rising rapidly, the loan may only cover a portion of the purchase price, and the borrower will need to provide a down payment in addition to the monthly loan repayments.
The following are some key terms and concepts used in mortgage loans:
Principal: This is the amount of money that is borrowed and needs to be repaid.
Interest: This is the cost of borrowing the money, and is typically expressed as a percentage of the principal.
Term: This is the length of time over which the loan will be repaid. The most common terms are 15 years and 30 years.
Amortization: This is the process by which the principal is gradually reduced over the term of the loan, through the payment of interest.
Mortgage insurance: This is insurance that protects the lender in the event that the borrower defaults on their loan. It is typically required if the borrower has a down payment of less than 20% of the purchase price.
As with any loan, there are certain risks associated with taking out a mortgage. The most significant risk is that of default, which can lead to the lender foreclosing on the property and the borrower losing their investment. Other risks include the possibility of rising interest rates, which can increase the amount of the monthly payments, or falling property prices, which can leave the borrower "underwater" on their loan (owing more than the value of their property).
Despite these risks, mortgage loans are still a very popular way to finance the purchase of a home, and have helped many people achieve their dream of homeownership.
T.K is an avid writer on business topics, he works with SEO Geek Singapore