A mortgage loan is a kind of unsecured loan in which you can avail funds by pledging your asset as security with the lender. This is an extremely popular form of borrowing as it enables the borrower to avail a large loan amount with extended repayment terms and interest rates. In general, a mortgage loan is a secured loan usually sanctioned against an immovable property such as a residential or commercial property. The loan amount is used for debt consolidation purposes, making home improvements, paying for weddings, repayment of debts, or funding education.
A mortgage loan, however, does not need any collateral for its approval. This means that the lender relies on the borrower's repaying ability and record of expenditure. However, this process of obtaining a mortgage loan is more difficult than other loans as the lender has to give a larger amount of money with a shorter repayment duration. A mortgage loan is the major source of home financing especially for people having credit problems. It is therefore essential for the borrower to be aware of the risks involved in the loan before accepting one.
The conventional method of mortgage loans is to lend funds based on relative assets. This means that the lenders make a mortgage loan based on their assets i.e. equity. With the evolution of the financial market, the use of mortgages has gone beyond the traditional criteria. It is now considered prudent to make mortgage loans according to one's ability to repay.
Mortgage rates play an important role in determining the cost of home loans. In addition to this, mortgage loans are classified into two types - fixed mortgage loans and variable mortgage loans. Fixed mortgage loans are applicable for a fixed period and come with set interest rates and repayment periods. On the other hand, variable mortgage loans generally interest adjustable and are open to fluctuation in the interest rates.
Fixed mortgage loans can be used for the acquisition of any real property or asset. There are various types of mortgages available under this category such as business mortgages, home mortgages, refinance mortgages, consumer mortgages, etc. The amount obtained through the sale of any property can be used to purchase a residential property or an asset. It is recommended to use mortgage loans for the acquisition of real property so that the borrower can sell it after repaying the loan installments. However, it depends on the borrower whether he/she will be able to resell the property or not after the completion of the loan installments. For this, it is necessary to run a business or to earn a good amount through any commercial activities.
Refinancing a home purchase is another popular method used to acquire mortgage loans. When a home purchase is made with the help of refinance schemes then it is easier to repay the loan installments. A person can also obtain mortgage loans by securing a home equity or a second mortgage. However, it is necessary to repay the amount secured using a home mortgage loan according to the terms and conditions mentioned in the agreement entered into by the lender and the borrower.