Tuesday, November 15, 2011

Mortgage And Factors Influencing Its Interest Rate

Considering taking a mortgage loan but do you have enough information about the topic and its related terms. We can help you with this. Instead of looking for the information here and there, you can clear your basics and fundamentals of Mortgage by reading this article.

Definition of Mortgage: Often people consider mortgage as a loan to buy property but there is a bit more to it. In earlier times, Mortgage was also lent for crops, factory equipment, ships and train apart from property in general. This type of loan can be granted against collateral so the property itself is used for this purpose. If the borrower will fail to repay the loan for any reasons then the property or collateral will be used by the borrower to get the loan back.

Mortgage Rates: Any financial institution will lend some money only if it gaining something extra out of the deal. Here are the role plays by the mortgage rate. It is the interest that is paid by the borrower over and above the amount that is borrowed. The interest rate is payable until the last instalment of the loan, thus, people shop around to obtain the lowest interest rate possible.

Factors deciding and influencing the interest rate: Surely there are some factors that decide what can be the mortgage rate to be paid by the borrower. Below mentioned is a list of factors that play vital role in deciding the same:

Credit Rating: The credit rating of the borrower will greatly impact the mortgage rate. This rating clearly reflects the history of the borrowers in repaying the other loans and thus should be influential enough for the lender to easily grant the loan to the borrower. The credit rating gets better with time not overnight, so you can work towards improving the same before you apply for mortgage.

Down payment made on the mortgage: Most of the financial institutions will never grant the 100% loan equivalent to the property value. The borrower needs to pay some amount of down payment and the loan is granted for the rest of the value. The leftover value whether big or small will decide the mortgage rate.

Income of the borrower: This is very important. Your income every month will decide your ability to repay the loan and its duration. Different institutions will approve different income groups for grating the mortgage loan.

Frequency of instalment: Another crucial factor that is important and will be decided mutually by the borrower and lender is frequency of instalment. Monthly repayment of loan is bound to have a lesser interest rate as compared to the quarterly, bi-annually and semi-annually instalments.

By: Sentjohnson
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