What is a Mortgage?

A mortgage is when you take a loan from a lender while offering some property as a security for it. The mortgaged property is returned to the debtor when the money is returned or certain stipulated terms in the mortgage agreement have been fulfilled. There are various types of mortgages available to suit the needs of almost everybody. The two most important types of mortgages are variable mortgages and fixed mortgages. Fixed mortgages are those which have a fixed rate of interest for the entire period where as the rate of interest varies continually for variable mortgages. The number of years can vary from as low as 6 months to even 35 years. However as the time increases, the interest on the amount borrowed also increases. Hence it is always more advantageous to repay the loan as soon as possible.

In some countries it is a little more difficult to get a mortgage with a bad credit history. In such cases not only is the interest high but also the lender tends to demand more security. On the other hand it is even more difficult to get a mortgage when you do not have a credit history at all. In such cases it would be useful to go in for a fixed mortgage for a shorter time period extending for a maximum of about three years. This can be used to establish a good credit history by making regular payments so that loans at lower interests can be obtained in the future.

One of the most important types of mortgages that first time home owners go for is the pre-approved mortgage. Most real estate agents try to ensure that their customers have such plans so that they can look up homes that fall within their budgets. Pre approved mortgages are those in which the lender agrees on a set interest before a deal is reached for a fixed amount of the loan. Such arrangements are for shorter periods of time and have certain conditions that have to be fulfilled before the deal is signed. Some of these conditions include showing proof of your income, verifying that the loan can be repaid with your own resources etc.

Sometimes it is advantageous to repay the mortgages as soon as possible to avoid increased interest rates. In such cases accelerated payments can be made where payments are made as and when possible rather than on a regular monthly basis. Some people also choose to make double-up payments and principal prepayments. Selecting a shorter amortization at renewal is another way of reducing the mortgage period and saving some money.

Choosing a short or long term mortgage depends on a few factors. If you are planning on selling the house within a few years, it is always better to go in for a short tem plan. On the other hand, if the interest rates are high, you should opt for a long term plan so that the rates would have dropped down by the time you make your final payments.

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