Getting a loan may be necessary in case you are short of cash. That money can help a lot if you are planning to build a business or buy a new house. This scheme is called a mortgage loan. If you live in Utah, there will be at least one mortgage lender who can help you with your financial concerns.
For starters, a mortgage refers to an agreement between a borrower and a lender. The agreement allows the former to use real estate as collateral so that the latter can acquire a loan. Mortgages are usually associated with home loans.
When used to buy property, the lender can take away your property if you fail to pay a mortgage on time. This leads to property foreclosure, which means you have to pack your bag and say goodbye to your house. In return, the lender can sell the abandoned property to compensate with the remaining loan payment balance.
Types of mortgage loan
There are different types of mortgage loans, namely:
Fixed-rate mortgage
This is the most basic type of mortgage loan. It means you have to pay the exact same amount for the loan in a given period. It includes the specific loan amount and the interest rate. Payment period usually lasts around 15 to 30 years depending on the agreement and how fast you pay.
You can pay in advance so your debt will lessen and pay the entire loan in a shorter time. There are a lot of websites where you can compute for fixed-rate mortgages. These can help when you are comparing lender rates so you can make your decision.
Adjustable rate mortgage
It is the same as standard loans, only that the interest rate may fluctuate from time to time. As a result, your mortgage payment will also be adjusted, hence the term. This type of mortgage loans can be risky due to frequent rate changes.
Balloon loans
In a fixed rate mortgage, you will pay a fixed amount for the next 15 or 30 years until it is paid off. In balloon loans, you have to pay a large sum of money in a given time to remove the remaining debt.
Mortgage lenders vs. servicers
Mortgage lenders and mortgage servicers are often interchanged but are actually two different terms. The former lends cash to borrowers so they can purchase a property. The latter is responsible for dealing with the day-to-day mortgage functions.
Mortgage lenders can also act as servicers. Meanwhile, mortgage servicers can replace mortgage lenders due to some reason. Both mortgage lenders and servicers have rules and regulations companies should comply to. Likewise, they are regulated by the government.
How you can get a mortgage loan
First, you have to apply for a mortgage loan. This involves several paper works and approval may take some time. Among requirements needed to secure a mortgage loan include:
- Income and credit – how much you earn and how well you handle your payments
- Debt to income ratio – your monthly income vs. your monthly expense
- Loan to value ratio – your loan cost vs. the total amount of the property
Before borrowing money for mortgage, make sure to do your own research. More importantly, you should pay on time to avoid foreclosure and drowning in debt.
