A very common question among people looking for information about a secured home loan is to understand what a mortgage is. If that’s what you’re looking for, know that you’re in the right place. In this article, you will be able to take all your doubts about the topic and even discover how to use your property to get a loan.
The mortgage is also known as “home equity loans” or “real estate refinancing”. It is a type of loan in which the borrower places a property as collateral to ensure payment of the debt and allows you to finance the acquisition of your home, apartment or premises. If you are thinking of buying a property, here we discuss the mortgage, its type and mortgage terms.
This type of loan mostly has three types of customer profiles: People who are looking for money to settle more expensive debts, entrepreneurs who need capital for investment and the third type is one who wants to buy a second property and was unable to do so through common real estate financing.
TYPES OF MORTGAGES
Generally, we can differentiate two types of mortgages, depending on their interest rate:
In this case, the bank will offer a fixed interest rate, offering you security against Euribor movements and allowing you to know what the monthly installment will be until it expires.
The main advantage that we can find in fixed mortgages is the security of knowing that the price to pay will not be affected by market fluctuations.
If you choose financing for your property with a variable rate, this will mean that on a recurring basis, normally every 12 months, the interest rate to be paid will be reviewed based on the Euribor. The main advantages that we can find in variable mortgages are their low commissions and a longer amortization period.
TERMS AND INTEREST
Like all types of loans, the mortgage is no different and has interest and debt repayment terms.
The interest charged on the mortgage currently varies between 12% to 27% per year. These amounts are very close to the payroll and well below the interest rates on credit cards and overdrafts, which vary from 90% to 127% per year. The debt repayment terms are up to 30 years but we advise you to pay this debt in the shortest possible time.
HOW MORTGAGE WORKS IN THE UNITED STATES
The mortgage is a very popular credit line in the USA. It consists of placing a property as collateral to get a loan with low interest and long terms. In the United States, the mortgage (or mortgage) is more similar to what we know for real estate financing, as it is used to buy the first property. When the owner of the property purchased it via a mortgage and uses it as collateral for another loan, it is called a second mortgage, home equity or second mortgage.
This model became popular because it offers a longer payment term and allows for a larger amount of credit. The customer makes a small entry and shares the rest of the amount is up to 30 years.
The procedure is quite common for Americans. The lender lends money in exchange for the debtor’s title deed as collateral for the transaction. This title is a document that can formalize the negotiation and acquisition of a property. In time, the 2008 financial crisis even broke out because of the American mortgage industry. This happened because the institutions relaxed the concession criteria and started to lend money to those who could not pay. Even so, in the USA, the mortgage sector is very strong and because it is one of the main financial sectors in the country, it has several government incentive programs. With more than $ 8.6 trillion borrowed, mortgages represented 67.8% of the credit to individuals in the United States in the first quarter of 2017.
WHO CAN ASK FOR IT?
All those people who are buying the habitual residence through a mortgage loan and who are in a situation of “economic vulnerability”. That is, the debtor remains unemployed due to a health emergency crisis or, if he is a self-employed worker or an entrepreneur, he suffers a substantial loss of his income.
ADVANTAGES AND DISADVANTAGES OF THE MORTGAGE
The advantage of a mortgage loan is the possibility of obtaining higher amounts, with longer terms and lower interest rates than other types of credit.
However, if the debtor fails to pay the debt, he will lose the property he offered as collateral, which is the main risk of the mortgage. As the asset was given as a guarantee voluntarily by the debtor, it can be taken even if it is the only property in the family. Get information about What is Asset Allocation?
IMPORTANT TERMS ABOUT MORTGAGE
These are some terms that you should know before applying for a mortgage.
If you apply for a mortgage loan, you are the borrower, that is, the person who receives the loan from the lender. In the mortgage, the debtor keeps possession of the asset, which means that he continues to exercise all of his ownership rights.
The creditor, in this case, is the bank or financial institution that is legitimately authorized to demand payment or fulfillment of the obligation/debt. The debtor confers on the creditor the real right over an asset owned by him or another.
It is an additional guarantee that is sometimes requested by financial institutions to grant a mortgage loan. The joint and several debtors must be a person on a fixed salary or have an asset in his name so that he can cover the debt in case the debtor does not meet the credit installments. Not all financial institutions ask for a joint debtor.
The loan amount is calculated over a certain percentage of the asset’s value. Each bank or financial institution has its percentage defined. It generally ranges from 50 to 70% of the value of the property assigned as a mortgage.
Also, the amount of money that will be lent also depends on each bank, as each has a maximum amount.