All About Loan In Singapore
Random header image... Refresh for more!

What Exactly Is A Mortgage?

Mortgage is a loan a borrower avails, by pledging his real estate property to a financial intuition or a bank. He is required to back the money with a set of prefixed payments. Companies as well as Individuals utilize mortgage for making big real-estate transaction without paying upfront, the full purchase value.

In day today life, the term mortgage is frequently used to denote a mortgage loan. It comprise of the loan size, maturity and rate of interest.

Fundamental concepts

Even though the mortgage jargons differ from nation to nation, its fundamental concepts are identical.

Property: It is the property in physical form that is funded. The precise ownership type vary from nation to nation

Borrower: An individual who tries to generate ownership interest on the property by borrowing.

Lender: Usually a financial institution or bank acts as the Lender. They are also termed as investors. Through a security backed with mortgage; they hold a possession over the property.

Principal: It is volume of the mortgage loan.

Interest: It is the monetary charge for the utilization of money given by the lender.

Repossession or Fore closure: It is the option that the lender forecloses seize, repossess or foreclose the assets under some situations

Completion: It is Mortgage deed’s lawful completion and the commencement of the mortgage.

Redemption: It is the absolute repayment of an outstanding amount. It can be a lump sum redemption or “natural redemption”.

Types of mortgage loans

Fundamentally there are two kinds of loans Adjustable –rate mortgage and fixed rate mortgage abbreviated as ARM and FRM respectively.ARM is also called as variable floating mortgage or floating rate). In some nations like America FRM is the rule, however adjustable rate mortgage is also commonly found in various nations. A mixture of floating as well as fixed rate mortgage is also found in several countries.

The periodic payment and interest rate remains preset in fixed mortgage loans. Even though the supplementary costs like insurance and property tax may change, the payment remains fixed. In this loan the principal payments and interest will not alter over the loan’s duration.

In ARM, for a specific time period, the rate of interest remains fixed, than it changes monthly or yearly according to market index.

Interest and Capital

The usual method for repayment of safe mortgage loan is making regular payment of the principal amount (also called as capital) and interest over a specific period. In countries like the UK and US, it is called as repayment mortgage and amortization respectively.

Another important parameter for an individual to get approved for a mortgage loan is having a good financial stability and income. This is a vital criterion, which the lenders will look into before giving the loan to the individual. They will also scrutinize other things like previous credit or loans, the deposit amount the individual has, and also the price of the property, which he intends to purchase.