Maybe you have heard of mortgage a hundred times already or perhaps your own house is already a mortgaged one. But do you know what it really means and the processes that are involved in this term? If not, scan through this article and you will at least know what it is in a simple way.
A mortgage is a type of loan. But it is quite unique to the loans that you have already gone through. It is usually loaned to buy a home or a house at that. The house itself will serve as the collateral for the money that you have borrowed. Simply put, you can buy the house that you have dreamed of, live on it, use it and do pretty much what you want (expect of disposing it of course) provided that you will pay according to the given periods that you are required to do so.
There are little regulations that you have to keep up with when getting a mortgage loan. You will know them by acquiring the authorities in your area. The following terms are the common ones which one will encounter when applying for a mortgage.
Principal - this refers to the sum of money that you have borrowed to buy the home that you have chosen. Before the amount of principal is laid down, you can make a down payment to reduce the amount of money that you have to pay during the installment. The principal reflects the cost of the house that you have decided to buy. The more strategic the location of your home, the higher is its price.
Interest rate - this refers to the amount of money that the lender charges and piled into your principal as the payment of the privilege that you got from the borrowed money. The principal and the amount of interest rate will be the sum of monthly installment that you need to pay in a process called amortization. With amortization, the payment that you will pay in the first years of your loan will be considered as your interest while later payments will make up the principal debt that you have.
Taxes - mortgages need taxes to be paid too. The community allows you to live in your mortgaged house as long as you pay the due taxes according to the value of your house. In line with this, your house should also be insured. The lender sees to it that your house is protected from both unseen and foreseen events like theft and fire. Otherwise, the lender will not close the deal.
Period - this pertains to the time or the period of years that the lender sets as a time frame for you to pay both the principal and the interest rates. Failure to do so will bring you to the next term.
Foreclosure - this term is rather too advanced but introducing this beforehand will keep the borrower well informed. If you are not able to update your payments each month or year, tendency is that your bills will pile up. In the end, if you fail to pay the money that you have borrowed from the lender, the lender will repossess your property and it will be sold to the auction. Plus, certain indemnities should be paid too.
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