All About Mortgages

 Simply put, a mortgage is a contract between someone who wants to lend some money and someone who wants to borrow it. The borrower is commonly referred to as a mortgagor and the lender is commonly referred to as the mortgagee.  Of course these terms are most commonly used when referring to homeownership and the need to borrow money from the banks.

There are several types of mortgages available and not all of these come from a bank.  There are also places like credit unions, trust companies, mortgage companies, private lenders, and even in some circumstances the sellers or vendors.  Although it is wise to be aware of the alternatives, most people prefer to take a more conventional route and go directly to the bank. 

For residential property the conventional mortgage is the most common type of financing.  Although there can be variations, the terms and conditions are fairly standard for all of these. Generally, the loan cannot exceed 75% of the appraised value or purchase price of the property whichever is less.  In most cases, conventional mortgages do not need to be insured, but there are several instances where the lender requires it. Several examples occur when the building is older or somewhat rundown, or if it is located in a rural or economically depressed area.

For one reason or another, people may not be able to raise the necessary and traditional 25% funding for down payment.  For these people, a high ratio of mortgage is generally available but it must be insured.  Here as well, some of the alternate institutions will lend the money, but these loans are usually at an interest rate that is much higher than the one the conventional banks offer.

After you've got the mortgage, you'll need to decide particulars about it.  For instance, it's necessary to decide on a fixed rate or variable rate mortgage.  The variable rate mortgage is different in that the mortgage rate can change over the course of a loan, whereas fixed-rate mortgage has the payments unchanged for the duration.  Another option that most people would rather not consider is a second or third mortgage.

Conventional lenders will usually provide money for second mortgages if you qualify.  You can also obtain a second mortgage through a mortgage broker, but again the rates will be much higher than if you go through a conventional bank.  It's important to keep in mind that the competition for your mortgage is extremely intense.  There are various factors that you should look at including amortizations, interest rates, whether the mortgage is opened or closed, repayment privileges, as well as a host of other issues.

As well, it's very important that you don't take more money on the mortgage than you can afford to pay back.  Often the bank will qualify you for an amount that exceeds what is in your budget.  Be careful to work through the numbers and take only what you can pay back and not what you think you’d like to have.