A mortgage loan is the loan which is mainly used by the purchasers to buy the property or to raise the funds for any purpose. In this mechanism it allows the lender to take the possession and sell the secured property. The lender can be any financial institution it can be any bank, or a building society depending on their country. In mortgage loan the method of paying loan, interest rate may vary considerably. Mortgage borrowers which can be any individuals mortgaging their homes or they can be businesses. In other countries markets have been developed there where the demand of the home ownership is highest.
Mortgage loans are generally structured for the long term loans and it is calculated accordingly to the time value of money. Mortgage lending is considered to be the primary mechanism to finance the residential property and commercial property which is used in many countries. Basic arrangements would require monthly payments for ten to thirty years. Lenders raise the funds to earn the income of interest and borrow funds by taking the deposits. In many other countries people sell the mortgage loan who wants to receive cash payments in the form of security from borrowers.
There are many types of mortgages which is used world wide and along with it several factors defines the characteristics of the mortgages . They are as follows – interest , terms , payment amount and prepayment .The two main types of loan are the Fixed rate mortgage and Adjustable rate mortgage. Adjustable fixed rate is also called floating or variable rate and in some countries such United States floating variable is common.
In fixed rate mortgage loan the interest rate will remain fix for the life.In case of repayment the periodic payment remains of the same amount through out the loan.
In adjustable fixed rate , the interest rate will be fixed for some period of time and then will adjust up or down to market index.
Types of Mortgage Loan
· Loan to value : Using mortgage loan for purchasing the property borrower makes the down payment means it contributes portion of the cost of property . Loan to value means the size of the loan against the value of the property.
· Foreign currency mortgage : This mortgage is common and enables lenders to lend in stable foreign currency ,here the borrower will take currency risk and therefore they need to convert higher amount of the domestic currency to repay the loan.