The term “mortgage” hales from the Old French words, mort, meaning “dead,” and gage, meaning “pledge.” It is translated to represent the doubtfulness of whether or not a debt will ultimately be paid. That is to say, if the property is not paid for in full, then it becomes “dead” to the mortgagor. (He has no claim to it) However, once the debt is paid in full, then the pledge from the mortgagor is said to be “dead,” or completed.
Today, the definition, although not changed in essence, has become refined to describe a temporary pledge of one’s property to some form of creditor until the repayment of the debt is complete. The cost of purchasing a house is astronomical, and steadily rising. As a result, the majority of homeowners establish a mortgage through which they can break up the cost and pay it off over the course of some pre-determined time frame with interest.
Mortgages can simply be thought of as temporary contracts through which one party pledges payment to another party over the course of a pre-determined time frame, in exchange for some form of property. In short, the house serves as collateral until the debt is paid. Contracts allow for the total cost of a property to be broken up into monthly instalments. In terms of purchasing a home, costs can range from tens of thousands to hundreds of thousands to millions of dollars. There aren’t too many people who have it within their means to make such an expensive purchase, so payment is broken down, and a mortgage is drafted through which they are contracted to their creditor. Monthly payments make it manageable for almost anyone to purchase a home by matching a payment plan that best suits the client.
Fixed and Adjustable Rates
There are numerous loan programs for borrowers to consider. The two most common programs are those of fixed and adjustable rates. For all individual scenarios, there exists a beneficial program that will complement it. In some instances, this amounts to a combination of both fixed and adjustable rates. The difference between a fixed rate and an adjustable rate is quite simple:
In the case of fixed rates, the level of interest remains constant. As for adjustable rates, the level of interest (surprise, surprise) is capable of adjusting every six months. The advantage in choosing a fixed rate is that the level of interest can never rise above its initial rate. The advantage in choosing an adjustable rate is that the level of interest for these programs is discounted, and can, in effect, save you a great deal of money.
Fixed and adjustable programs, although the most popular, are not the only one’s to choose from. Choosing a home equity line of credit (HELOC) can be advantageous for those who are responsible borrowers, and can be more or less compared to a credit card. There is a “draw” period during which the credit on the loan is available to the borrower. During this “draw” period, the borrower has a great deal of flexibility and control over the amount of money he/she wishes to borrow. The borrower can choose to use the full balance of the credit line, or simply use funds as needed. As payments are made, the line of credit is restored and available for the borrower to use again. The reasons for utilizing a home equity line of credit range from debt consolidation, refinancing and home improvements, to education, investments, entertainment and vacations.
Another mortgage program to consider is a balloon program. A balloon program are mortgage loans with monthly payments that will be liquidated over a stated time frame. Once at the end of the agreed upon time frame, the balloon payment will be due requiring a lump sum of the remaining balance of the loan. It is common to refinance a balloon program at the maturity.
“Credit Comeback / Credit Repair”
A “credit comeback,” also referred to as a “credit repair” program is set up in such a way as to assist borrowers with previously late mortgage payments. The program is designed to offer borrowers the opportunity to lower their interest rate by .375% every year for the first 4 years of their loan when they make their previous 12 payments on time. The beauty of this program is that your interest rate cannot be raised, but can be lowered up to 1.5%.
Equity Release Schemes
An Equity Release Scheme is another fairly new finance vehicle provided by the banks for the elderly and retired (over 55 at least) to be able to “release some equity” from their property. In essence people can either sell part of their property (also known as Home Reversion) or they can get a “reverse mortgage” (Lifetime Mortgage) on part of their property. This simply means that they “exchange” part of the value of their property into cash (that is also tax free!). For more on what equity release is and how equity release works click here