• Mortgage Mean : We are all familiar with the concept of a mortgage from personal experience. Most people don’t have enough money to purchase a home outright, so they go to a bank and take out a loan. The bank agrees to give them a loan with the condition that the home can be legally repossessed and sold to pay off the balance of the loan in case the borrower defaults on his or her payments. This is the common arrangement that we are all familiar with. Traditional mortgages are structured over a 15 or 30-year span of time and usually require a monthly payment. Most banks are required to collect property taxes and homeowner’s insurance on behalf of their borrowers and remit these amounts to the local governments.
Thus, the typical monthly payment for most individuals includes a principle, interest, insurance, and tax payment. The insurance and tax payments are placed in an escrow account until the lender remits them to the proper agency.
Example - Individuals aren’t the only entities that can have a mortgage. Businesses often take out loans to purchase buildings as well as improvements. Retailers that rent store locations in a mall might take out a loan to improve parts of the store. Since the retailer doesn’t own the building, it can’t use the property as collateral. Instead receivables or other assets are usually used to satisfy the collateral requirement of the loan. Although improvement type loans are not typically referred to as mortgages, they follow the same principles.
Seven things to look for in a mortgage
- The size of the loan
- The interest rate and any associated points
- The closing costs of the loan, including the lender's fees
- The Annual Percentage Rate (APR)
- The type of interest rate and whether it can change (is it fixed or adjustable?)
- The loan term, or how long you have to repay the loan
- Whether the loan has other risky features, such as a pre-payment penalty, a balloon clause, an interest-only feature, or negative amortization
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