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Do Know the Exact Mechanism of Mortgage - Learn Now
(296 Views)
COMMERCIAL MORTGAGES CALIFORNIA
ORANGE COUNTY, SAN DIEGO, LOS ANGELES, SAN FRANCISCO, SAN JOSE
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Do Know the Exact Mechanism of Mortgage
By hirniswilliam 296 Views

Mortgage is a mechanism under which real estate is used as a security or collateral by the lender. Mortgage in itself is not loan, but it security for the loan that lender makes available to the borrower. In other words we can say mortgage acts as an evidence of debt of the borrower.

Mortgage may be classified into two broad categories, namely

Residential mortgage

Commercial mortgage

In the residential mortgage, residential property or house of the borrower is used as security for the loan by the lender. In case of commercial mortgage real estate other than house or residential property is used as security for securing loan from the lender. Commercial mortgage is used for securing real estate for office, factory, storage etc.

Commercial mortgage is also used by businesses to secure money for

Working capital

Purchase of equipment

Compared to home or residential mortgage commercial mortgage is much more complex. This complexity arises because of liability and credit worthiness of the business in case of commercial mortgage.

Usually there is difference in the rate of interest for residential and commercial mortgage. Because of higher risks involved in commercial mortgage, their interest rates are appreciably higher compared to those of residential mortgage.

Besides these two broad categories, rate of mortgage play significant role. Based on the rate of interest, mortgage may be classified as

Interest only

Fixed rate

Adjustable rate

Balloon

Reverse

In case of interest only mortgage, borrower's schedule payment consists of only interest on the mortgage. Usually this type of mortgage is available for fixed term of 5 to 7 years. After the fixed term is over borrower has to pay for principa In case of fixed rate mortgage, rate of interest remains same through out the term of the loan. Borrower will pay same amount as monthly installment through out the tenor of the loan.

In case of adjustable rate mortgages you may be able to find lower initial interest rate than the prevailing market rates. In this type of mortgage interest rate of the mortgage are linked to certain market indices and fluctuate according to market.

In case of balloon mortgages, loans are of short duration and interest rates are fixed. Monthly installments are also fixed in this type of mortgage. Borrower usually gets lower interest rate compared to prevailing market rate for these mortgages.

Balloon mortgage is usually 2 term process. In the first term, borrower pays fixed monthly installments. In the second term borrower make a single payment for the full amount of the mortgage.

In case of reverse mortgage, borrower gets money from the lender. This type of mortgage is usually available for senior citizens.

When you plan to buy a house or commercial property, you must enquire about the best and lowest mortgage rates. Find answers to all your quarries online. Make choice of mortgage and realize your commercial or residential dream.

ARTICLE SOURCE: http://www.articlesbase.com/mortgage-articles/do-know-the-exact-mechanism-of-mortgage-learn-now-503978.html

 

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