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Mortgage


Mortgage is a loan to finance the purchase of real estate, usually within a specified payment periods. The monthly payment of a mortgage includes the principal and interest. The borrower (Home buyers) who finances his home through mortgage is called mortgagor, and the lender (Often banks) who holds the title or a lien on the property as collateral for the loan is called mortgagee .

Let say you have a steady job and you want to buy a house (real estate) but you do not have enough money to make cash purchase. Is there any way that you can afford buying a house without having as much money as the price asked in your bank account?

Yes, there is a way. You can buy the house of your dream by mortgaging your house to a lender. Still confused? Let me clarify this with a simple real world mortgage example. Remember in the absence of a real estate agent, there are three parts involve in the process of buying a house through mortgage. The seller of the house, the purchaser and the lender. The seller will surrender ownership to the buyer only when he receives the full amount agreed. But because the purchaser does not have the cash to pay the seller, he has to borrow. It is not easy to get a loan unless the lender is satisfied that you have steady income to make your monthly payments. If you qualify for mortgage, the lender will ask you to sign a contract that allows him to hold the title of the house (also called lien) and give him the right to sell it if you default on your payment. Then if you agree, the lender will pay cash to the seller on your behalf, and receives the title (ownership) of the property from the seller. Systematically the lender owns the house till you finish all your monthly payments in accordance with the agreement signed. Although the lender owns the house till your last payment, he does not have the right to sell the house as long as you pay your installments on a regular basis.



For your information cash purchases are cheaper than mortgage financing simply because mortgage involves payment of interest on the amount of money borrowed at a predetermined or agreed mortgage rate to mortgagee. Some of the factors affecting mortgage rates include:
* Amount of down payment paid - the higher down payment, the lesser monthly payment (saves interest)
* Income of mortgage borrower - people with higher income get lower mortgage rates
* Life of mortgage loan - the shorter mortgage life, the lower mortgage rate(15 years mortgage financing gets lower rate than 30 years financing due to the level of risk involved)
* Total mortgage loan amount - the lower mortgage amount, the cheaper
* Nature of mortgage rate - fixed or variable
* Closing cost -miscellaneous fees charged by those involved with the home sale not to mention lender for processing the loan, the title company for handling the paperwork, a surveyor, local government offices for recording the deed, brokers or real estate agent, etc..