bond is a long-term loan that uses real estate as collateral. A mortgage loan
is commonly used for buying a home or other real estate. In fact, a mortgage
bond is the only legal way to secure property as security.
borrow money from a lender and sign your property as surety, that surety is
meaningless unless registered with the office as a bond over the property. This
control was introduced due to the abuse of land and surety that used to take
place decades ago, where many land owners lost their land due to unscrupulous
lenders. Remember the old western movies?
mortgage market offers a variety of mortgage loans catering to the needs of
homebuyers. The titles and details of these plans can become confusing,
especially as new types are introduced continuously. You can make sense of
these loan types, however, if you understand the basic principles that govern
all mortgage loans. Again, you can look to your real estate professional
OF ALL BONDS
- The home
is used as security to back up the loan. A lender can force sale of the home if
the borrower defaults by failing to make scheduled payments.
- The larger
the loan compared to the value of the home, the more risky for the lender and,
often, the more expensive the loan will be.
earned by the lender always is equal to the periodic interest rate times the
outstanding principle balance of the loan. The periodic interest rate is the
annual interest rate divided by the number of payments in the year (usually one
required payment usually is a bit larger than the interest due so that some of
the loan principal is repaid with each payment. This process is called
Amortization and is why most mortgage loans can be retired when all the monthly
payments have been made.
learn more about the types of financing available, you will notice that some
loans appear to have more favorable terms. That may indicate that those loans
are, indeed, bargains (and it does pay to shop around), but usually it means
that those loans could have some feature that is less appealing to borrowers.
payment and fixed interest rate - fixed rate mortgages
- Fixed rate
but variable payment - graduated payment mortgages
rate and variable payment - adjustable rate mortgages
example, shorter-term loans often have slightly lower interest rates compared
to longer-term loans. However, the monthly payment for the same amount of
principal may be higher because of the shorter term. Variable rate loans
usually have much lower interest rates to compensate for the risk the borrower
accepts that interest rates will rise in the future.
mortgage loans require monthly payments of the interest, an amount for the
principal debt as well as amounts that are set aside for items such as life and
home insurance if these were taken up as part of your bond. These are generally
termed “traditional” bonds.
it is rare in these days of tight credit markets, some lenders may still
offer "nontraditional" mortgage loans such as interest-only loans,
in which case the borrower pays only the accrued
interest and none of the payment is used to reduce the principal
balance, or loans where the borrower chooses each month whether to make a
minimum payment, pay the accrued interest only, or pay the accrued interest and
a portion of the principal.
obvious danger of not settling any of the capital, is to find your self in
twenty years time with a home you still owe money on.
details on the various costs involved in buying a property go here
your options and get advice from your agent, bond originator and others
- It is the
home buyer's obligation to fully understand the terms of their loan.
For more detailed information on Finance issues go here
Go back to Buyers main page