A good grasp mortgage market basics would make any potential property buyer strike a good deal. A mortgage is a type of loan mainly advanced by financial institutions for the acquisition of fixed assets. The collateral for such a loan is in most cases the property whose acquisition is being financed.

The key characteristics of this loan include the loan amount, the loan term, the repayment schedule and the contract interest rate. The loan amount is the actual cash value of the advanced loan. The loan term outlines the specific details of the contract such as the security being offered. The repayment schedule outlines how any loan will be repaid. The contract interest rate is the rate of interest charged on the principal either on a monthly basis or annually.

Just like any type of loan, such loans have associated risks. The common risks are default risk and market risk. Default risk is associated with the inability of the mortgagor to meet his or her repayment obligations. Default risk always results in a loss on the part of the lender. Market risk is always due to the fluctuations in real interest rates. In the case that interest rates, drop the lender gains. In case interest rates rise the mortgagor gains. It is ultimately a zero sum game.

There are two types of mortgagees. These are institutional lenders and private lenders. Institutional lenders include commercial banks. Private lenders mainly comprise individuals and financial corporations not obligated to follow government guidelines. The mortgages they offer are not insured by the government.

There are various types of mortgages. Stable rate mortgages and flexible rate mortgages are the most common. In the case of stable rate mortgages the interest rate remains constant throughout the repayment period. In the case of flexible rate mortgages, the interest rate on the loan varies according to price mechanism. This leaves the mortgagor more exposed but he or she has the extra incentive of enjoying reduced interest rates whenever possible.

The entire system is made up of the primary and the secondary mortgage market. The primary market gives rise to new mortgages. The secondary market facilitates the purchase of existing mortgages.

There are several reasons as to why people take mortgages. The first reason why people take mortgages is to fund property acquisitions. In the process such property acts as collateral for any funding advanced. In some mortgage agreements no transfer of such property is permitted. Some individuals use mortgages as a refinancing tool. They do this to either obtain lower interest rates or to consolidate their interest payments so as to qualify for tax deductions. The motives are varied and inexhaustible.

In conclusion, this kind of loan is the key to fixed asset accumulation. However, it is advisable for potential mortgagors to beware of predatory tendencies of some lenders. The importance of understanding mortgage market basics can never be overstated. It is therefore important for potential borrowers to fully understand the forces at play so as to reap maximum benefits.

Author Bio: If you are looking to buy a new house, you might need help with the Toronto mortgage. Contact the expert mortgage brokers specializing in rates and deals. These mortgage brokers Mississauga will be able to help in managing your mortgages.

Category: Real Estate
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