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Mortgage 101 – The Basics

Some of the visitors of this page must be aware of the term "Mortgage" and its derivatives and some of us have yet to dust off the McGraw Hill's book about Mortgages from their bookshelf. If you fall in the second category or do not fall in either of them, this article will try to give you an overview of what a mortgage really means.
Mortgage pronounced "mawr-gij" is derived from a French word (literal translation dead-pledge, go figure) as a lot of us know is, you guessed it, a loan …. well not exactly. A mortgage is:

o a lien, assignment of legal rights to a property to the lender, until the borrower pays off the loan

In other words,

o a collateral provided by the borrower to the lender until he / she pays off the loan.
Hence, we as buyers "mortgage our house (s)" to the lenders, to pay off the seller of the house then get on to paying the lender monthly payments until we pay off the entire loan. This type of loan is often referred to as a mortgage loan.

How does the bank benefit by providing mortgage loans?
To every loan a lender (bank or a financial institution) grants to the mortgagor (the mortgage seeker) it charges a certain percentage of interest per year, also known as Annual Percentage Rate (as opposed to Annual Percentage Yield, APY, will be discussed in a separate article) which is essentially the interest charged by the bank in addition to mortgage insurances and other fee (s) typical to the agreement.

Typical APR for a 30 year mortgage loan ranges from 5.0-6.0%. To make it easier for mortgage loans to be available to the general public, some banks employ mortgage brokers. Independent brokers are also available, and many people use them to avoid becoming a victim of predatory lending.

Consumers can save a lot of money could be saved by lowering the APR on the mortgage loan, one thing you should always keep in mind before applying for a mortgage loan is that a slight decrease on the APR could mean a whole lot of money saved.

So huddle up and call all three credit bureaus before you apply for the mortgage loan. Make sure the bill from the time where you did a mega funeral of the cat that passed away, does not show up on your credit history because you denied paying the bill after the cat was decomposed. And if there are any detrimental entries on your credit report, or anything that has tainted your credit score, make sure you take care of it before you apply for the loan.

Mortgage loan borrowers who do not have a decent credit history might become the victim of a bad credit mortgage loan; you will have a very hard time paying it off. So before applying for a loan, do enough research about the current mortgage rates and your own credit history and plan a loan which you know you could make monthly payments on in case you lose your job or something bad happens to you.

Following aforementioned guidelines will help you become a better mortgage seeker in the crowd.
There are several different types of mortgages of which the most commonly used ones are:

o Fixed-Rate Mortgage
o FHA Loans
o Interest-Only Mortgage
o Adjustable-Rate Mortgage
o Mortgage Buydowns
o Equity Mortgage Loan
o Reverse Mortgages
We will discuss about these derivatives of mortgage loans in articles to follow.

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