Home Mortgage

Home mortgage is the most common type of mortgage loans today.

Home mortgage is the most common type of mortgage loans today.

Also known as home mortgage loans, it is gaining momentum in many countries as individuals and corporate organizations are reluctant to doll out such large sums of money usually associated with purchase of residential or commercial estates.

Technically, a mortgage can be defined as a temporary or conditional pledge of one’s property to a creditor as a security for performance of an obligation or repayment of a debt. There is a contract deed specifying the terms of the mortgage which defines rights of the mortgagee upon the mortgaged property. Using investment analysis, a mortgage is defined as a debt instrument secured by collateral of real estate properties and which is required to be repaid by regular loan amortizations. In terms of economics or legal banking procedures and techniques, mortgage facilitates the transfer of interest on the property to the creditor and gives him conditional ownership over the asset. However, mortgages are today widely regarded as a lien to ones personal property (chattels) or real property (commercial or residential estates).

In terms of home mortgage loan too, the implications of a mortgage loan are more or less unchanged. A home mortgage is generally availed of by individuals willing to purchase residential properties but do not have the financial strength to buy such an estate. The mechanism of a home mortgage goes as follows: an individual secures the home mortgage loan against the property he wants to buy for a specified time period. Upon failure to repay the loan amount, the creditor of the home mortgage provider may appropriate, repossess or foreclose the property and sell it in the future. The sales proceeds are used to realize the outstanding balance of the mortgage loan. In cases where individuals are able to repay the debt in time, the mortgage property is discharged.

Home mortgage can also be defined as keeping ones’ house as mortgage for securing bank loans which can be used as business investments for the future. Securing bank loans for business purposes requiring large sums of money can be very difficult to obtain due to the associated risks for non realization of the loan.

Obtaining loans against house mortgage can be easier to get as the perceived risks on part of the mortgage companies is less and they are prepared to lend at lower interest rates. Returns on investment or a future guaranteed stream of income however has to be calculated before availing of such a loan. It is to be noted in this context that investments are particularly prospective in the real estate sector.

Home mortgage can be of the types such as Adjusted Rate Mortgage (ARM), Fixed Rate Mortgage (FRM) and Prime Rates. The FRM rates on mortgages remain the same over the tenure of the debt which with interest rates a bit higher than 30 year treasury bonds at the time the mortgage is issued.

The mortgagee is required to pay the interest on the mortgage or the mortgage rate and a little bit of the principal with the interest on the principal falling over time. In case of the ARM, the mortgage rate may change in response to the Treasury Bill rate or the Prime Rate. ARM is structured so as to follow market rates with a maximum ceiling rate which cannot be exceeded. ARM’s generally start with lower mortgage rates in order to accommodate future risks out of interest rate fluctuations.

Home equity is fixed or variable interest rate solutions which can help you garner cash out of available equity in your home. This equity can be used for home improvements, debt consolidation or unexpected expenses. This method of converting the home equity into cash payment while retaining the ownership of the property is known as reverse mortgage in the USA and equity withdrawal in the UK. Qualifying for this scheme generally entails that a person has to pay off his previous home mortgage.

Prime rates are the lowest interest rates offered by mortgage companies to their most credit-worthy borrowers. On corporate lines, mortgage rates can be Prime in nature when mortgage companies offer loans to corporates who are considered to be excellent risks. Home Loans can also fit in this type especially in the case of refinance mortgage home loans. Some of the prevailing mortgage rates in the case of USA extend from 5-5.5% for 30 year or 15 year FRM whereas for 30 year fixed jumbo mortgage rates it is around 6% and for ARM it is about 5.5% at present.

While anything can be kept for mortgage in the USA, the mortgage financing industry estimated at US $ 18 billion recently, has been driven by the growth of the home financing or the home mortgage sector in the country. With established organized companies, many Non Bank Finance Corporations have contributed to the tremendous growth in the home loans sector. The mortgage rates are set on a fixed or floating rate basis varying between institutions in the range of 12.5% to 16% with loans being offered for 15 years although some of the mortgage companies extend the mortgage tenure up to 20 years or more.

 

Some of the home mortgage companies in the USA and India are:

Wells Fargo
Fannie Mae
Countrywide Financial
ICICI
SBI
HDFC