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What is a Mortgage? Loan "Basics" For Beginners…
A mortgage, also referred to as a "mortgage loan", ia an agreement between you (the borrower) and a mortgage lender to buy or refinance a home with money provided by the lender. This agreement gives the lender the legal right to "repossess" a property if you fail to meet the terms of your mortgage, most commonly by not repaying the money you have borrowed plus interest.
Difference between a LOAN and a MORTGAGE
The term "loan" can be used to describe any financial transaction where one party receives a lump sum and agrees to pay the money back.
A mortgage is a type of loan that is used to finance property. Mortgages are "secured" loans.
Who Gets a Mortgage?
A mortgage is necessary if you can not pay the full cost of a home out of pocket. Most people who purchase a home use a mortgage.
There are some cases where it makes sense to have a mortgage on your home even though you have the resources to pay it off.
How Does A MORTGAGE LOAN Work?
When you get a mortgage, your lender gives youa set amount of money to buy the home. You agree to pay back your loan (with interest) over a period of several years. The lender has rights to your home until the mortgage is fully paid off. Fully amortized loans have a set payment schedule so that the loan is paid off at the end of your term.
The difference between a mortgage and other loans is that if you fail to repay the loan, your lender can sell your home ro recoup their losses.
- Home Refinance
Borrowers often choose to refinance when the interest-rate environment changes substantially, causing potential savings on debt payments from a new agreement.
Buying a house is a major commitment. Before you begin shopping for properties or comparing mortgage options, you need to make sure you are ready to be a homeowner.
Consider the following factors lenders and homeowners should consider:
- Income and Employment status
- Debt-to-Income Ratio or "DTI"
- Liquid Assets
- Credit Health (Credit Score)
Cash-outs are common when the underlying asset that collateralizes the loan has increased in value. The transaction involves withdrawing the value or equity in the asset inexchange for a higher loan amount (and ofter higher interest rate). This option increases the total loan amount but gives the borrower access to cash immediately while still maintaining ownership of the asset.
In other words, you can gain access to the value with a loan rather than by selling it.