Taking a mortgage refers to the transfer of an interest in a particular immovable property to secure a loan. Generally, land and other properties that are attached to the land such as buildings, trees or any permanently-fixed machinery are counted as immovable properties. Apart from securing a loan or performance of a contract, no other reasons concerning any kind of transfer of property are considered as a mortgage.
An important feature of a mortgage is that the owners can transfer some of the proprietorship rights to the mortgagee while retaining the remaining rights themselves. For instance, a mortgagor can retain the redeeming right of a property that is mortgaged. The interest of the mortgaged property is generally re-conveyed to the mortgagor after the repayment of the loan. In the event of the mortgagor failing to do so, the mortgagee reserves the right to recover the debt from the proceeds of the sale of the mortgaged property.
Before taking a mortgage, the mortgagor should keep the following important things in mind to make an informed decision:
1. The budget of the debtor
When a mortgagor applies for a mortgage, the creditors evaluate their earnings to understand whether the former can pay the debt. Therefore, the debtors themselves should carry out their mortgage calculations to determine the amount they can afford to pay back.
2. The credit of the mortgagor
As the banks are risking a huge amount of money against a mortgaged property, they become extremely cautious and undertake necessary precautions to ensure that they will receive their money. One important factor that can ease the process of taking a mortgage is a good credit score.
3. Safest mortgages
Generally, a fixed-rate mortgage is considered as the safest form of a mortgage and a debtor is required to have an understanding of it to determine whether the mortgage would be suitable for them.
4. First-time buyers
First-time home buyers might qualify for a special mortgage, which may or may not be valuable. Therefore, the mortgagors must make themselves familiar with the limitations of these types of mortgages to check whether it will suit their requirements.
5. Down payments
Sometimes, mortgagors are not required to offer any down payment while taking a mortgage. While in some other, they might have to pay a small amount as down payment. The debtors must gain an understanding of the various types of mortgages available that are considered safe in order to select a mortgage that can offer them greater benefits.
6. Other mortgages
There is a wide range of mortgage options available including various creative ones such as negative amortization, adjustable-rate, and interest-only mortgages. While this may work out for people with unpredictable earnings such as investors of real estate and self-employed people, it might cause a lot of trouble for others. Hence, one should get themselves acquainted with the risks involved in different types of mortgages.
7. Refinancing
Owing to various reasons such as a change in the rate of mortgage or an improvement in the credit score, one may decide to opt for a better mortgage. In this situation, the refinancing of a mortgage can be beneficial if chosen for the right reasons.
One must make a note of all these above-mentioned factors while considering taking a mortgage.