The lending market never goes down as the modern life cannot do without the help of loans. There are several things people need to maintain their lifestyle and they are way much costly for them to afford with a few days incomes. Some of them are fundamental needs. Such a thing is a place you need to live. A house is not a place where you pass your nights; rather it is the place where you with your family members reside. It is the place your family gets the security. So, whether you can afford it or not, you need to have a home for your family and you. When you cannot afford a home all by yourself, you will take the hand of the lenders to make yourself eligible to afford it. That is why, mortgage loans are one of the most leading loans that rule in the lending market of USA.
There is hardly any person who buys a home without mortgage. There are several mortgage loans that come in package of adjusting your income condition. That is why, people do not think much before taking a mortgage loan. On the other hand, there are several benefits of taking a mortgage inspiration fund for which taking a mortgage loan is also consider as one type of investment. It is because when you take a mortgage loan for buying a home, you are not spending your money for something that will not find its way back home. You are buying an asset with the money you get in mortgage loans. This asset is the home. The feature of home as an asset is that its price never decreases. Even if you have bought a house 50 years back, there will not a single penny decrease for the asset. On the other hand, in 50 years, the price of the place might go up, you can make a home improvement and sell the house with much more money than with what you bought it. That is why, mortgage loans are kind of loans that cannot be considered as a financial obligation only. It is kind of a financial obligation that can be proved as a future investment and make profits for you.
Before the discussion starts, let’s know about what is a mortgage loan.
What is a mortgage loan?
A mortgage loan is a kind of a loan that is provided to you as a financial assistance for buying a home. A home is not a cheap commodity. For a regular earning person, it might take one person several years or the whole life to save up the amount one needs to buy a home. So, it is quite tough for one to avail a home without the assistance of a mortgage loans. When one person applies for a mortgage loan, the mortgage lenders deal with the home seller. He or she pays the total sum required for buying the house for the borrower. In short, the lender buys the house for the borrower. The price he or she pays for buying the house becomes the capital of the mortgage loans. Then the lenders add up a sum of interest rate and loan fees with the capital. The borrower then repays this loan with a significant number of interest rate.
Suppose, you are going to buy a house and the house is worth of $60,000. Now, you cannot afford to pay the whole price of the house, so you need a third party financial assistance in order to buy the house. So, you need to take up a mortgage loan. You will also have to make an agreement with the lender that how much of the home price will be paid by you and how much will be paid by the mortgage lender. In most cases the home buyer needs to make an upfront. That is not also a small amount. For example: for a $60,000 price of a house, you might need to pay an upfront of $15,000 or $10,000. There are also mortgage deals where the upfront is also paid by the lender. In such cases, the borrowers will have to pay for only the loan proceeding fees and others related fees required for the loans. The mortgage dealer would deal with the home seller and pay the price towards him or her. Suppose the lender is paying $60,000 towards the home seller. Now the $60,000 will be considered as the capital of the loan. The lender will add up the interest rates and other loan fees with it. If the interest rate is 10% and the loan proceeding fee is $500 then the total amount that has to be paid towards the lender is $66,500.
The money lender will divide this amount in various installments. For example: you need to repay this loan amount in 10 years and in 120 installments. So, if the loan follows a simple calculation, then you will have to pay $554.17 for each and every installment every month.
So, any medium or low earning people, it might not be possible to accumulate such a big sum of $60,000 and pay it towards the home sellers. To pay a sum of only $554 or nearly $600 is not something impossible for such a person, even if it every month. So, by taking such a little hassle every month, you can own yourself a total house that is worth of $60,000. On the other hand, in few years, the prices of the house increase, the price of the lands also increase. Thus, by paying nearly $600 every month, you will not only buy a house, you are going to buy an asset which you can sell at an increased price in the future and thus it becomes an ideal form of investment.
The number of house buyers or house hunters never decreases, so, the mortgage market is always at a rush. That means, you will always find crowd in the mortgage market and the mortgage loans are always high in demand. Looking at the high demands, the lenders have given several types of loans in the market for you to choose. Each of them is mortgage loans, but you can choose from the varieties so that it can adjust with your current financial condition.
Different type of mortgage loans is described below:
Different type of mortgage loans’ descriptions is as follows:
Start the loan with 1% start rate:
The Start the loan with 1% start rate mortgage loans are also known as pick the best payment loan program for mortgage as well. These kinds of loans are also called as adjustable interest rate loans. This kind of loans is provided with the feature that the repayment of the loan would be adjusting with your present financial condition. If your income is low, then the interest rate of the loan will be low and it can be as low as 1%, and if your income is high the interest rate will be higher adjusting with your present financial condition. The biggest advantage to have such a payment option is that you do not have to face any hassle to repay the mortgage loans. Your financial condition will always be in a suitable place to repay the loans. It will help you to avoid any default position and bad credit score for repaying the loans. On the other hand, the disadvantage of repaying the loan is that you have to pay a huge amount on the interest rate of the loan. You might end up repaying the interest rate for a long time, but it will not make too much impact on the capital of the loan. That is why, people are suggested to take such kind of loans that are known as adjustable rate loans, but they must also transfer their loan towards fixed rate loan after sometime, when they have a stable financial situation.
The 100% financing mortgage loans:
The 100% financed mortgage loans are kind of known as risky loans. It is taken by the borrowers who do not have any back up of assets to support them up in repaying the loans. The 100% financing loans are unsecured loans, and at the same time the borrowers will not pay any upfront for the loans. This kind of loans comes up with a very high rate of interest. They are also called as high risk loans as it takes a long time for repaying the loans and the borrowers end up paying a huge sum as the loan fees. You might repay for the loans for a long time, but it is going to have a small impact on the capital of the loan. Also, the conditions for such loans are very strict. So, one default in the loans might decrease your credit score in a big level.
The strict conditions of 100% financing mortgage loans place the borrowers in a very risky position. On the other hand, the ease of taking these loans in the beginning allure the borrowers to take this loan in a high rate. So, in previous years, the market has seen a proliferation of lenders providing this kind of loans. On the other hand, the takers of clients for such loans are also high in number. On the other hand, the huge number of foreclosure and house surge is also in a great rate for these kinds of loans. That is why they are called as high risk loans.
The balloon mortgage loans are also known as high risk loans in the market. The balloon mortgage loans have several distinct features for which it is very much popular among the borrowers. For example: if you have a very low income at this time, but at the same time, you need a home, then you would definitely fall for a loan that is offering you to not to pay any amount in the beginning of the loan. It means that for the balloon mortgage loans, you do not have to pay any amount during the lifetime of the loan; you will only require paying the interest rates. The petty amount of interest rate will never bother you; never put you in any financial hassle. In easy words, if you have a balloon rate mortgage, then you will not merely understand or get the feeling that you have any loan on your shoulder to repay. In most cases, the balloon mortgage loans consist of at least 15 to 30 years. So, for such a long time, you will not have to take any hassle for the loans. At the end of the lifetime of the loan, you will have to pay the huge amount of the capital at once. That is why; they are called as balloon loans, because you have to pay such a huge amount at the end of the loans.
This kind of loans is ideal, if they are taken by business people. The business people always have pretty great amount cash coming in and out of the business. So, it is an advantage for them to keep the money stale for a long time and also they can invest it in other projects. On the other hand if they are going to pay such a big amount at the end of the lo an, then it will not affect them too much they take such loans as they keeps moving their business assets like home, so by the time the loan ends,. They might take another house by selling this one. So, they do not face a lot of problem for making such a balloon payment.
The loan is a high risk loan for the normal people as it is quite tough for any medium earning people to pay up such a huge amount as the loan capital at the end of the loan life time.