How To Get Full Value For Your Mortgage


A Guide to Mortgages


One of the types of debt we hear about the most is also one of those people tend to know less about: Mortgages. Mortgages are so ubiquitous that they’re often mentioned, and not only in the news – it’s quite common for characters in movies or TV shows to worry about their mortgage. However, what is a mortgage, other than an overhanging debt?


A mortgage is, by definition, a type of loan. However, unlike with other loan types, mortgages normally involve collateral in the form of a real estate property. If the terms of the mortgage aren’t followed, the issuing entity can take over the underlying property. Generally, they’re offered by banks, although credit unions or other societies may also offer them.


What are they for?


Most mortgages these days follow a common goal: Allowing someone to buy a property. However, they can also be used in case of emergency, especially when people desperately need large amounts of money, their application might be unsuccessful without collateral. Another common use for mortgages is economic development, where a company might mortgage its headquarters to raise money for further expansion.


These housing mortgages, how do they work?


The limit on a mortgage is set by the issuing entity and represents the most an applicant can spend on a property. The applicant must also make a down payment, usually 20% of the property’s value, with the bank paying the shortfall. The house is then bought, and the applicant is enrolled for the property deed.

From then on, the applicant must repay the money to the bank, either by monthly payments plus interests or in a lump sum. The monthly payments and interest rate are set when the mortgage is signed and generally relate directly to the applicant’s credit score. Mortgages with higher monthly payments might accrue smaller interests in the long run, since they’re paid faster.


So, I get a free property, nice. What then?


It’s not so much a free property as it is a loan to buy a property. A loan with a very big clause: If you default in your payment, the bank is entitled to the deed of your property. Since in homeowner loans you’re asked to put down 20% of the cost of the property plus monthly payments, defaulting on your mortgage means losing the property, the initial deposit, and any monthly payments you made.


And what if I can’t pay?


In most cases, banks are willing to work with homeowners who can’t pay their mortgages due to circumstances beyond their control. While they’re often painted as evil entities interested in your home, banks usually would rather the mortgage gets paid in full then enforce a seizure.

In fact, the worse-off the economy is, the more likely a bank is to renegotiate mortgages. Huge mortgage credits for people who had no way to pay them was, after all, what set off the US housing bubble of 2006, leading to a nationwide recession. 

This crisis saw to it that many people couldn’t pay their mortgages, and this led to the crash of housing prices. As a result, many other people with mortgages found themselves having to pay more on their mortgages than the properties were worth, and thus decided to also default on them. This led to banks losing massive amounts of money while taking over lots of properties that weren’t worth nearly as much as the money lent.

In order to avoid this kind of crisis, banks these days are much stricter with mortgages. People who just fifteen years ago might have been eligible for mortgages on huge properties are usually offered much less these days. However, to avoid this bubble from happening again, banks are usually willing to negotiate and give people breathing room before taking over their payments.


How long do I have to pay my mortgage?


The length and the monthly payment will depend on the property and your credit score. Usually, banks offer 15 and 30-year options for mortgage payments: That is, the mortgage payment plan is drafted to assure the property will be fully paid in that time. If you go for a shorter timeframe, you’ll face higher monthly payments, but you’ll also end up paying less, in the long run, thanks to lower interests.


Are there any other costs?


Yes. There are several extra costs that must be paid at the end. These costs are for both paperwork and other required fees, like insurance, appraisal costs, and any other processes the bank takes up on your behalf. You can sometimes pay them up-front, pay them at the end, or have the bank pay them. However, if you’d rather have the bank pay them instead of financing them yourself, you’ll face higher monthly payments and interests rates.

These costs aren’t hidden, although most people don’t think of them at first. They’re related to all the actions required to buy or sell a home we often ignore, along with legal obligations the homeowner must fulfill.


What if I have a bad credit score?


Many banks are interested in allowing people to buy properties and will offer plans for most people who aren’t in high risk of defaulting. However, if you find yourself unable to obtain a mortgage from a bank, or if you would rather not do so, there are alternatives. Many national governments offer housing plans, generally with lower payments and interests than banking mortgages. The real estate they deal in is less luxurious, and usually in middle to a low-class neighborhood, but they are in turn more affordable than private mortgages.

There are also institutions that offer mortgage processing to eligible people. Generally, these institutions deal with specific markets, such as armed forces personnel or university professors. Unions often get housing benefits for their members and said benefits can at times include mortgage financing. For most people who want to buy a home, there are many ways to help.


About the other types of mortgages and more


Homeowners’mortgages work because the applicant must pay a percentage of the cost of the property when the mortgage is created. In cases where a property that’s already fully owned is offered for a mortgage, this payment doesn’t apply. Instead, the only collateral is the deed itself, as the applicant risks losing their wholly-owned property if they default.

For mortgages relating to the economic activity, such as those taken by companies, plans on what will be done with the mortgage must often be presented and accepted by the bank.

finally, as a side note for housing mortgages, many institutions will offer different interest rates for people buying their first home and people buying extra properties. Just as well, if you’re applying for a mortgage on a property that you intend to rent or are already renting, you must disclose it. In most cases, these will lead to higher interest rates and payments, as the lower interests are usually offered only for people looking for a place to live.