To add to our knowledge of Personal finances, let us consider some basic facts about Home Mortgage Loans
In simple words, it is a loan taken by an individual from some bank / financial institution / investor, in lieu of the property which the individual already owns / wishes to own completely in the future.
Nowadays, with the real estate prices hitting the roof, generally people do not have the money to make the entire payment for buying the home / building the home / renovating their existing home. So, in these situations, they generally resort to taking loans from banks / financial institutions. The lender charges a specified rate of interest for the usage of finances during the tenure of the loan.
A mortgage occurs when the owner of a property pledges his interest in the said property as a collateral / security with a bank / financial institution for a loan amount.
Home Mortgage loans are the major source of financing for having ownership for residential property. People also use mortgage loans for buying commercial property.
To understand with the help of an example.
1)
Suppose a certain Mr. Kumar, wants to purchase some additional property / home , then he can approach the bank with his financial details – like the amount of down-payment he is ready to put in the property, his credit history, present and future earning capacity etc. Here, the bank releases the appropriate funds to the borrower after a fair assessment of the market value of the property, which the borrower wants to purchase.
2)
Suppose that Mr. Kumar, has a house valued at USD 3,00,000/-. He has a requirement for some additional home building loans to further construct / renovate his home. He can approach a bank with papers of his property. The bank will assess the fair market value of the particular property and then give the desired amount of loan which is required by the borrower.
So, in essence, the borrower has taken a Home mortgage loan from the bank in both of the above cases.
The above is a very simple explanation of the working principle of Home mortgage loans, In actual practice, a number of points need to be considered before the loan is actually given out. Some of these factors include:-
-- The Earning capacity and consequently the Repayment capacity of the borrower
-- The Financial History of the borrower – Has his earnings been consistent in the past. What is the occupation of the borrower ?.
-- The Creditworthiness of the borrower – Has the borrower taken any loans in the past from any sources ?. Have the loans been repaid in full, without any complications ?.
-- The Time Period required to repay the Home Mortgage loans
-- The Interest Rate charged by the lending institution.
And a host of other factors, which we would discuss in our upcoming articles.
I hope you have enjoyed reading this article. As always, comments are Welcome and Encouraged. Cheers..........
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