Mortgage

Human wants are unlimited, but the resources that fulfill whst they want are restricted, both in supply and in use. Thus, satisfaction is a term that exists only in the dictionary made by man but fails to secure a place in the human minds. These also gave rise to a field of knowledge or say a study called economics.

Just as single handedly a person cannot do everything, he makes groups and societies, similarly with the resources that a person has alone, and he cannot fund all the needs of his life.

Extra funds are always welcome as some crises or need exists in human hearts all the time. We all work hard day in and day out to meet the basic needs of life and to maintain a basic standard of living.

After the required expenditure, we may or may not be left with enough money to splurge on extra needs or to make additional assets. Well, times have changed and now, there are plenty of such institutions that only cater to give extra financial resource to the common man and charge interest on such amount, which is there source of revenue.

There are many instruments that such institutions float in the market; one of such is the mortgage scheme.

What is mortgage?

Mortgage basically means raising a loan against property. In other words, when a property is given as a security for an amount of loan it is known as mortgage. It is a very common way of borrowing money as it is secured and the risk is less to both the borrower and the lender. Mortgage is generally done on property like land and building against which the loaned amount of money is sanctioned by the financial institution.

Mortgage involves two party transactions, the debtor and the creditor.The debtor is a person who needs the money or requires the loan and the creditor is the provider of the loan or the fund demanded by the debtor. The debtor can be an individual or a business house or a society or a firm, whereas the lender is the bank or any other financial institution that specializes in the lending money or in mortgage.

The property that has to be mortgaged is valued by professionals in the presence of both the parties. The creditor then decides the amount which could be forwarded against the property. If both the parties are satisfied then a mortgage deed is drawn containing the terms and condition of the mortgage, which is signed by both the parties, finalizing the contract between them.

The property papers are kept as security by the creditor for the money advanced; in return the debtor pays back the money in easy monthly installment. The easy monthly installments are a combination of the interest and some amount of the principle borrowed. Such amount of payment is fixed for a certain period in which both the interest and the principal are recovered by the lender and the mortgage against the property is withdrawn.

The mortgage may or may not be redeemable before the expiry of its terms depending upon the terms of the contract. Redeemable means the payment of the obligation or the money in full by the borrower before the expiry of the mortgage term. for example if a mortgage is done for 10 years and the person pays off the amount of loan before ten years say in eight years then the mortgage is said to have been redeemed in advance.

Repayment of the mortgage

As discussed earlier, the mortgage amount is paid in installments by the borrower which includes a certain part of the interest and another part of the capital. In the initial years of the payment, the amount consists of a major part of the interest and a nominal part of the capital.

With the passage of time it is reversed, that is, the amount would now comprise of a major part of the capital and the little remaining of the interest. This is because with time the amount of principal becomes less and hence the amount of interest depreciates and the amount of capital repayment appreciates.

This enables the debtor to redeem the mortgage at the end of the decided period. Then there is another type of mortgage which is for the older citizens. This mortgage is also done against the property of the old and retired. The only difference is that they are not required to pay back the amount of either the loan or the interest, thus multiplying the amount of the loan which lasts a lifetime, and then the property becomes a part of the lender.

This type of mortgage is only for the old and retired and may not available at all the financial institutions that specialize in mortgaging. Then there is the part repayment mortgage, which enables the borrower to pay a lump sum of the capital borrowed after a certain years and keep paying the interest amount otherwise.

There are many such schemes and combination available and the deal should be finalized on one in which the borrower feels that he has convenience in paying back and will not have to take extra strain .

Interests

Mortgage interest rates are generally fixed by the apex bank of the country depending on the number of years for which the mortgage has been done. The financial institutions work under the guidelines provided and accordingly draw up the interest charts, which may minutely vary from one concern to another, but not majorly. Interest rates can be either fixed or adjustable.

The fixed rate enables the borrower to pay back a steady amount of money as the interest rates are fixed, where as in the adjustable rate the initial rate is lower than that of the fixed rate but in the later years it is gradually adjusted and increased, this increase is based on predetermined index by the lender. You should thus strike a deal by using the best of your knowledge and your ability to pay.

Do not get lured by the initial low payments; do think of the higher ones you have to make later. If your income is steady then fixed rate is advisable, and if your income is expected to rise In the future then the adjustable rate is recommended. Be wise in making the best deal for yourself.

This is the best way to buy your self a house and is commonly practiced in nations where the demand for housing accommodations is large. Such countries have a very developed mortgage market, with a lot of companies working in this field.

But the globalization factor affects all the economies of the nation and mortgage deals are catching up every where. After all who does not want to fulfill a long awaited dream and make a home which he can call his own.