Mortgage loans and how they work
What is a mortgage loan?
A mortgage loan is a type of loan that individuals or businesses can obtain from a financial institution, such as a bank or mortgage lender, to purchase a property. It is a long-term loan secured by the property itself, which means that if the borrower fails to repay the loan, the lender can take ownership of the property through a process called foreclosure. Visit www.rg.co.ke to make an application.
How mortgage loans work:
1. Application: The borrower applies for a mortgage loan by submitting an application to a lender. The application typically includes information about the borrower’s income, employment, credit history, and details about the property being purchased.
2. Pre-approval: The lender evaluates the borrower’s application and financial situation to determine if they are eligible for a mortgage. If approved, the lender provides a pre-approval letter, indicating the maximum loan amount for which the borrower qualifies.
3. Property appraisal: The lender typically requires a professional appraisal of the property to assess its value and ensure it provides sufficient collateral for the loan.
4. Down payment: The borrower is usually required to make a down payment, which is a percentage of the property’s purchase price paid upfront. The down payment reduces the loan amount and demonstrates the borrower’s commitment to the investment.
5. Loan terms: The lender specifies the terms of the loan, including the interest rate, repayment period, and any applicable fees or points. The interest rate can be fixed (remains the same throughout the loan term) or adjustable (may change over time).
6. Loan approval: Once the lender completes the evaluation of the borrower’s application, credit history, and property appraisal, they make a decision to approve or deny the loan. If approved, the lender issues a loan commitment letter, detailing the approved terms and conditions.
7. Closing: The borrower and lender meet to sign the loan documents in a process called closing. The borrower typically pays closing costs, which include fees for services such as title search, appraisal, attorney fees, and taxes. The loan funds are then disbursed to the seller, and the borrower takes ownership of the property.
8. Repayment: The borrower is required to make regular payments to repay the loan over the agreed-upon term. Each payment consists of both principal (the loan amount) and interest (the cost of borrowing). The specific repayment schedule depends on the loan terms.
It’s important to note that the exact process and requirements may vary depending on the lender whom the mortgage loan is being obtained. Additionally, there are different types of mortgage loans available, such as fixed-rate mortgages, adjustable-rate mortgages (ARMs), government-insured loans, and more, each with its own features and eligibility criteria as per www.bankrate.com