The term mortgage is a French word meaning death contract. Be not fooled into thinking that it is a contract of the dead. This means that the contract only expires when it is repaid in full or when the property is taken away. The loans are suitable for individuals who wish to own property that they may be unable to afford. In this case a home. The details usually put down by the mortgage loan provider as below.
Extra costs to maintain the house
The extra stuff that the buyer would have to offset include: electricity, maintenance costs, security and lastly water bills. These are actually minor costs. They are usually not an obstacle to the client.
Down payments
The down payment is usually 20% of the whole value of the property, which, as noted has a loan: value ratio of 80%. This guarantees reduced risk for the lender but also makes sure that the client is not too strained. In this case, the down payment amounts to $60000. This is because the asking price of the property is $299,950 USD. To cover for variations all calculations were done based on a $300,000 USD mortgage. The client would have to raise this amount in order make the process secure. This is typically done before the loan is cleared as feasible.
Financing options
Basically there are two types of loans. There is the fixed rate mortgage and the adjustable rate mortgage. The fixed rate mortgage is easier but the adjustable rate mortgage may be used when a fixed rate mortgage is less suitable, or when it may be too expensive. The rates are made fixed initially but are altered and calculated according to a suitable market index. In both of my options the fixed rate mortgage is used under different payment schedules. One is a balloon loan; the other is an absolutely fixed non flexible option.
The first option is a balloon payment plan that takes thirty years. It is broken down into 60 balloon payments each pay period being 6 months long, worth $5587.5. The mortgagor may default all they want within each six month period but at the end of each six month period they must pay the required amount for the balloon in full. Assuming a fixed rate the monthly payment required would be $ 931.25. This allows the mortgagor to plan ahead of any financial setback while working on a way to pay the balloon.
The second option is a fixed payment scheme that takes 20 years divided into 240 installments of $1396.875 inclusive of all costs as calculated to cover costs of insurance, taxes and interest.
Details of the financing option
The financing options provided are tailored to the varying needs of the mortgagor. The first one is especially good because it carries a smaller monthly installment option compounded over the whole period. The second option may be a little heavy to keep in case the mortgagor loses their job because it has no flexibility attached to it. The advantage here is that the mortgagor clears their debt in a shorter time. The disadvantage is the higher risk of foreclosure upon loss of a job or any financial problem that defaults in payment. Both options include a down payment at20%. This means that the carry the same risk born by the mortgagee.
Analysis
The first financing option is particularly easier to complete without mishap. It will not overstretch the budget of the client holding the loan. It is only worth $931.25 a month. The client will still live a normal life assuming they can spare at least $1000 a month. The flexibility attached to the mortgage allows one to skip a month provided they pay the whole balloon amount at the stipulated time. This makes it possible for someone to channel their money to any other point for use while making some in order to offset the balance. It trains the mind of this client to be an investor.
The second option is a little heavy and has no flexibility attached to it. Therefore, the client must always have the money for the installment ready every month without defaulting. The risk of changing the lifestyle in order to save for the loan payment is higher.
In conclusion, the mortgagor will need the loan, but they must be rich enough to raise the down payment and to pay the installment each month as required. The mortgagee must be able to provide credit in a form that makes it easiest to get back their money and a little credit. This they usually achieve.
References
Wikipedia. (2013, September 26). Mortgage Loan. Retrieved October 3, 2013, from Wikipedia.com: http://en.wikipedia.org/wiki/Mortgage_loan
Wilkinson , K. (2013, October 4). A Soft Breeze Beckons! Gracious 2 Story Home Can Be Yours! Retrieved October 4, 2013, from viviun.com: http://www.viviun.com/AD-201061/
