Financial instruments are legally binding agreement documents that have monetary value. They dictate the agreement made between the involved parties regarding a right of payment of an agreed amount.
Mortgage
The mortgage is a security instrument in real estate that refers to a long-term loan that finances an individual’s purchasing ability of real estate. The property being purchased is used as security for the mortgage and the interested buyer is expected to make a regular series of payments without fail. Failure to pay the mortgage as per the agreed terms results in the repossession of the property, and it is placed back in the market in an effort to recover the investment made. In addition, there are variable or fixed interest rates which must also be paid (Rose, 2011). The terminologies to be discussed in mortgage include deed and appraisal.
Contract sale
A deed or contract sale in a mortgage is a legally binding bi-lateral agreement between the real estate dealer and the purchaser that states the conditions that have to be met before the title of the real estate is handed over to the purchaser (Finder, 2014). It also contains the details of the purchaser, the vendor, and the property being sold.
Importance
A contract sale is important since it provides legal proof of the agreement made between the purchaser and real estate dealer. Since it is a long-term contract, future reference for both parties is possible in case of disagreements between them. In addition, it is binding for both parties, therefore, ensuring that both of them deliver what is expected of them (Finder, 2014).
Beneficiaries
A contract sale is important to both the real estate dealer and the purchaser. This is because it gives clear instructions on how the purchaser is expected to undertake his or her part of the deal in terms of payments and the information agreed on is used by the real estate dealer to evaluate the progress of the mortgage (Finder, 2014). On the other hand, the vendor is also instructed on the building inspections that must be conducted prior to the signing of the contract.
Appraisal
A property appraisal is an estimated value of a property that is to be mortgaged (Rose, 2011). It is based on analysis, knowledge, and experience of an appraiser depending on amenities, the location of the property, recent property sales in the area, and its structural condition.
Importance
A property appraisal is the most important aspect of a mortgage since it explains how much a bank is willing to give the purchaser. If one’s credit history is bad, the individual will lose his chance on closing the deal with the real estate dealer (Rose, 2011).
Beneficiaries
Getting a property appraisal is beneficial to both the buyer and the real estate vendor (Rose, 2011). The buyer gets to know if the property is overpriced or not while the real estate dealer gets a confirmation that the property will fetch a good price in the market in case of default by the purchaser.
References
Finder, L. A. (2014, January). What is a Contract of Sale? Retrieved July 21, 2016, from Local
Agent Finder: www.localagentfinder.com.au/blog/what-is-a-contract-of-sale/
Rose, J. (2011, November 26). Why a Good Home Appraisal is Important. Retrieved July 21,
2016, from Good Financial Cents: Making "Cents" of your Financial Life: www.goodfinancialcents.com/good-home-appraisal-is-important/
