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Mortgage Loan

What is a Mortgage Loan?

It is a kind of loan which is secured by real property or realty by the use of mortgage note which attests the loan & the encumbrance of the property through the granting of mortgage note which ultimately secures the loan.Nowadays, due to the rapid growth of the real estate sector the prices of residential areas have gone through the roof and it has become very difficult for the hoi polloi to save enough to purchase his/her abode of choice. This is where the role of banks offering home loan, mortgage loans and home mortgage loans comes to the forefront.

Getting a mortgage loan for buying a house is no longer a tedious process. With competitive home mortgage rates, banks are simplifying procedures to make it easier for applicants to secure loans. To counter competition, banks even offer the facility of availing mortgage loans online also. Lending institutions provide potential borrowers with home mortgage calculators, along with interest deduction, taxes and insurance, which present before the clients a clear indication of whether their financial health would be able to endure a deduction of the quantum calculated.

Mortgage Amortization Calculator

This mortgage amortization calculator helps provide an estimate of the payments required in maintaining a mortgage and provides an amortization schedule of these payments, input details about a mortgage such as the mortgage loan amount, the annual interest rate and the mortgage loan term in years . The calculator can also be input additional details pertaining to real estate taxes, homeowners insurance and any private mortgage insurance that may be required. The calculator then computes an estimate of monthly payments that are required to maintain the mortgage as well as providing an amortization schedule that shows the interest and principal payments by month for the term of the loan, as well as the balance remaining each month, in an amortization table.

Components of a Mortgage Loan

A mortgage loan consists of two parts, namely the principal and the interest. Principal refers to the actual amount being borrowed as a loan, while interest is the cost of borrowing the loan amount. Repayment of a housing loan is usually for a pre-determined period. Both the principal and interest amounts are combined together to come up with a monthly payment. This is referred to as an equated monthly installment or EMI.

There are two types of interest rates for a mortgage loan. The first type is 'fixed-rate' wherein the interest rate is fixed for the entire duration of the loan. The second type is 'floating-rate', in which the interest rate is revised periodically, in accordance with the current interest rate levels set by the national governing body. Most people who apply for a loan have it approved in a matter of days with banks fast-tracking their loan applications. Although obtaining a mortgage loan is quite a smooth and efficient process, many people encounter problems in it largely due to the fact that they go about the process unprepared or do not quite understand how a mortgage loan works. The following is the process involved in obtaining a mortgage loan.

How to Apply for a Mortgage Loan?

In loan terms, the bank to which one applies is called a housing finance company (HFC). After deciding the type of loan required and which bank to be applied to, the borrower contacts the bank and asks them for the mortgage loan application form. The form is filled by the customer and submitted to the bank. Nowadays this facility is available online also. Besides the form, the customer also needs to submit other documents required by the HFC like proof of identity, income tax details, residence address, employment status etc. The client also needs to give a cheque of a specified amount as a non-refundable processing fee. This fee is generally between 0.5 to 1 % of the loan amount.

Validation of the Information

After the submission, the loan application form is processed by the bank. During this process, the bank validates and verifies the details on the application form. This involves checking the residential address of the individual, visiting his/her office and checking his/her employer's credentials. At this point, the bank may call in the client for a personal interview and may also contact the people whom the client has given as his/her references. Thus, the bank actually decides if the client is eligible for the loan.

Mortgage Loan Approval

Once the bank is satisfied with the applicant's credentials, the loan is sanctioned. The bank issues a sanction letter, which contains details pertaining to the loan amount, interest rate, period of repayment, etc. The letter also contains the salient terms and conditions of the loan. The client then submits all the documents pertaining to the house being purchased, including the official papers. These documents are considered as security for the loan amount and remain with the bank until the entire loan amount is repaid. The documents received by the bank are subjected to scrutiny by the bank's legal department.

The bank authorities then visit the property site of the applicant to ascertain that whether the project has been lawfully permitted. They also investigate whether the building adheres to the rules of construction in force. Only after thorough verification of these facts, the bank expends the loan amount. In the case of a building under-construction, the loan amount is expended in stages, as each phase of construction is completed. In case of an existing building, the entire loan amount is expended at one time.

Mortgage Loans for Bad Credit

Mortgage loans for people with bad credit are considered risky to be given by mortgage loan officers. But still, mortgage companies make loans to people with poor credit albeit at a higher rate of interest, processing fees and service fees, pre-payment penalties and higher fees for late payments.

Last Updated On: 2011/08/10