A mortgage loan is a money advance loan given by a bank regarding real estate or property. That property can be anything, a house, or any other form of real estate that a person owns. If a person fails to repay the loan entirely, the lender can forfeit it at any time. However, if a person buys real estate for the first time, they can get a mortgage loan as collateral. These are also known as liens or claims on property.
A mortgage loan is a financial product whose purpose is to grant a certain amount of money, which will go towards the purchase or restoration of real estate. It is considered one of the most requested loans for companies and individuals.
The particularity of the mortgage loans is that the credit institutions that grant them, in addition to the personal guarantees they demand in any loan operation, also require guarantees about payment compliance on the operation. In this case, the guarantee is the property that is mortgaged, that if a default occurs, the ownership will automatically pass to the financial entity.
Characteristics and requirements of the mortgage loan
Mortgage loans have a series of peculiarities that differentiate them from any other credit operation. Some of them are:
- All mortgage loans will be associated with a current or current account in the name of the borrowers, in which the different installments to be paid will be collected.
- Having collateral is one of the safest loan operations for the credit institution that grants it.
- Due to the large amounts granted, the repayment terms are longer, and the interest rate is lower for other types of loans.
- The maximum amount granted by the financial institution is usually around 80% of the appraised value of the real estate.
- The fee to pay will be around 35% of the net monthly income of the people who request it.
Before its granting, the entity will conduct a feasibility study on the payment capacity of the borrowers in which ample documentation will be required (DNI, income statement, appraisal study of the property, a simple note of the property, latest payroll or VAT declaration, an employment contract … etc.).
Within the mortgage loans and depending on the interest rate applied, they qualify as:
Mortgage loan with fixed interest
It is the one in which the interest rate applied will remain fixed throughout the life of the loan. This means that the monthly payments to be paid will always be the same, so you will not have to worry about the increases or decreases in the rates. They are usually mortgage loans of a shorter duration since they do not exceed 20 years.
Mortgage loan with variable interest
It is the one in which the applied interest rate is generally reviewed and adjusted to the conditions that the benchmark index has in the market at that time. In this case, the duration of the life of the loan is usually longer and can last between 30-35 years.
Mortgage loans with mixed interest
As its name suggests, it is a combination of the two previous modalities. Usually, the loan starts paying a fixed interest rate that lasts between three and five years to become a later variable.
In any of the options chosen, we must not forget that all mortgage loans are associated with expenses added to the property’s purchase price: notary fees, registration, appraisals, opening fees, damage insurance, etc. Therefore, before requesting an operation of this type, we must be aware that mortgage loans are usually the most relevant financial operations for any family, company, or individual due to the large volumes loaned and the long duration of the loan.
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