What is mortgage and how it really works

Posted by on Oct 30, 2016 in Mortgage

What is mortgage and how it really works

There are a lot of people who are eager to move away from home and start their own families without their parents in the same house. People who want to start a new business and try to reach success on their own. But, they don’t have enough capital to actually do so. If you are one of those people, we suggest you stick around and read what’ve we have in store for you today. Today we will talk about mortgage, the one thing that can help you achieve your goals. Now, to begin with, mortgage is one of the most important financial decisions you will ever take. So if you ever decide to take it, be sure to think long and hard before you do that. And inform yourself about everything there is to be informed about. To help you better understand mortgage and how it works, we have prepared this little article.
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Mortgage is a secured loan. Being a secured loan makes it a lot different than other kinds of loans you might take for your car or a credit card. If you’re taking a loan for a car or credit card debt, you’re taking an unsecured loan. What is the difference between secured and unsecured loan? Well, secured loan works like this. You go to a bank and ask for hundred thousand dollars loan. The bank says, alright, but we will need that loan secured. The loan will be secured on an asset you’re planning to buy ( let’s say you’re buying a house worth a 100 thousand dollars).

insurance-claimsNow this deal is both sided. Banks love secure loans. If you agree to participate in a secured loan, you will have much lower interest rates. And we’re talking much, much lower, for the arguments sake let’s say the interest rate will be 4 percent. And if you’re taking unsecured loans, the interest rates may go up to even 30 percent. But why banks love this arrangement is of course not because of low interest rate, but because if you fail to repay the debt. They will legally seize your house and sell it in order to retrieve what they loaned.

More Advantages

Another advantage of taking a mortgage is because the deal is secured, you can take more than one. If they know they can get the invested money back by seizing your property, they won’t have any problems lending you as much money as you want.But there is one trick to it. The banks will never lend you the exact amount of what your hypothetical house might cost. Like we mentioned above, let’s say the house costs a hundred thousand dollars, the bank will ask for a deposit first, and this deposit, let’s say is 30 thousand dollars you will have to pay up front.

The bigger the deposit is, the more likely you are to be given a loan. On the plus side, the interest rates will be a lot lower than they would have been if you deposited only 10 thousand dollars.

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Mortgage, deposits and LTV

Posted by on Oct 21, 2016 in Mortgage

Mortgage, deposits and LTV

Mortgages are the most important financial commitments people make, and because of this, they should be thoroughly informed. In this article we will go over what you should expect about mortgages, how to prepare yourself for applying for mortgage and general information on how’s and why’s.Ā Mortgage is a secured loan and as such it requires an asset upon which it will be secured. If you go to a bank and ask for a mortgage, that means you’re willing to give your house or business to the bank if you fail to repay the debt. Banks love making secured loans because their money is guaranteed to be returned, unlike the unsecured loans. Now what you should expect when you apply for mortgages.

Banks do not give mortgage to anyone. They are scared they will lose money and in order to secure their money they have to make a good deal. That is why the banks never lend the full amount of money. In order for you to get a loan, you have to first make a deposit. Let’s say you’re buying house worth 100 thousand dollars. To get a mortgage for that house, you will have to come up with a deposit which makes a certain percentage of those 100 thousand you want to borrow.

Deposit

hoa_rents_units_in_complex_090914-resized-600The bigger the deposit is, the more chance you will get the desired mortgage, plus, the higher it is the lower the interest rate will be. So, if you come up front with 30 thousand dollars and say you want to get mortgage on that 100 thousand dollar house, the bank will agree, lend you 70 thousand and make a deal that if you fail to repay the debt, they will seize the house. The reason why banks do this is that the market value of real estate occasionally drops as well as it rises. If a bank were to loan you the full amount of money the house costs, after some years you’re not able to repay the debt and they sell it when the market value drops, they lose money.

LTV

As a last bit of this article, we will talk about LTV. Now, first, what is LTV. LTV stands for ” Loan to Value ”. Your house costs 100 thousand dollars, that’s the full value of your house. You’ve asked for a loan and came up with a deposit of a certain sum. The full amount of the house minus the deposit equals to what the bank is going to loan.
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So if you’ve come up with 30 thousand, the loan will be 70 thousand dollars. Loan to Value is exactly as it says, 70 thousand compared to 100 thousand dollars. It always gets viewed in percentage, so your LTV is going to be 70 percent. This LTV is the standard on how the banks decide if they’re going to loan you the money or not.

The higher your LTV is, the less chance you will be able to get a mortgage. So before you decide to apply for mortgage, scrape as much money as you can from your family or friends and then go and apply.

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