The term “loan” can be used to describe any financial transaction where one party receives a lump sum and agrees to pay the money back. A mortgage is a type of loan that’s used to finance property. A mortgage is a type of loan, but not all loans are mortgages.

Mortgages are “secured” loans. With a secured loan, the borrower promises collateral to the lender in the event that they stop making payments. In the case of a mortgage, the collateral is the home. If you stop making payments on your mortgage, your lender can take possession of your home, in a process known as foreclosure.

When you get a mortgage, your lender gives you a set amount of money to buy the home. You agree to pay back your loan – with interest – over a period of several years. You don’t fully own the home until the mortgage is paid off.

The interest rate is determined by two things: Central Bank Rate (EIBOR) and the level of risk the lender takes to lend you money (Margin). You can’t control the Central bank rates, but you can have some control over how the lender views you as a borrower. The higher your credit score and the fewer red flags you have on your credit report, the more you’ll look like a responsible lender.

The amount of money you can borrow will depend on what you can reasonably afford and, most importantly, the fair market value of the home, determined through a Valuation of the property. This is important because the lender cannot lend an amount higher than the appraised value of the home.

There are two parties involved in every mortgage transaction – a lender and a borrower.

Lender
A lender is a financial institution that loans you money to buy a home. Your lender might be a Bank or a Financial Company. When you apply for a mortgage, your lender will review your information to make sure you meet their standards. Every lender has their own standards for who they’ll loan money to. Lenders must be careful to only choose qualified clients who are likely to repay their loans. To do this, lenders look at your full financial profile – including your credit score, income, assets and debt – to determine whether you’ll be able to make your loan payments.

Borrower
The borrower is the individual seeking the loan to buy a home. You may be able to apply as the only borrower on a loan, or you may apply with a co-borrower. Adding more borrowers with income to your loan may allow you to qualify for a more expensive home.

Interest
The term mortgage interest is the interest charged on a loan used to purchase a property. The amount of interest owed is calculated as a percentage of the total amount of the mortgage issued by the lender. Mortgage interest may be either fixed or variable. The majority of a borrower’s payment goes toward mortgage interest in the earlier part of the loan.

Principal
Your mortgage principal is the amount you borrow from a lender to buy your home. You’ll pay this amount off in monthly instalments for a predetermined amount of time. You may also hear the term outstanding mortgage principal. This refers to the amount you have left to pay on your mortgage.

Amortization
Part of each monthly mortgage payment will go toward paying interest to your lender, while another part goes toward paying down your loan balance (also known as your loan’s principal). Amortization refers to how those payments are broken up over the life of the loan. During the earlier years, a higher portion of your payment goes toward interest. As time goes on, more of your payment goes toward paying down the balance of your loan.

Down Payment
The down payment is the money you pay upfront to purchase a home. In most cases, you have to put money down to get a mortgage.
The size of the down payment you’ll need will vary based on the type of loan you’re getting.

Loan to Value
Your Loan to Value (LTV) is the ratio between the amount of the loan you take out and the value of your property as a whole, as a percentage. When you decide how much to borrow, it’s worth considering what your LTV will be. A lower LTV ratio means that the rates available are likely to be lower than higher LTV mortgages.

Mortgage Tenor
Your mortgage tenor is the number of years you’ll pay on your loan before you fully own your home. For example, you may take out a mortgage loan with a 15-year term and that means that you’ll make monthly payments on your loan for 15 years before the loan matures. The most common mortgage tenor are between 15 years to 25 years.

Preapproval
A preapproval is a document that tells you how much you can afford to take out in a home loan. Many lenders consider the preapproval to be the first step in getting a mortgage. When you apply for a preapproval, your lender will ask you about your credit score, income, assets and other financial information. Your lender will then use these details to tell you how much you qualify for in a home. This can give you a rough budget to use when you compare properties.

The Following are the major steps to obtain a mortgage:

 

➊ Consulting with your Mortgage Consultant and discuss on your mortgage Options.
➋ Researching well to find the suitable kind of mortgage.
➌ Obtaining an agreement in principle through the lender of your choice.
➍ Looking for an ideal property that is well within the budget of the applicant and then making an offer.
➎ After the price has been decided, signing the purchase contract and determining the completion date to finish the property transfer.
➏ Getting the lender to complete all the final mortgage formalities and prepare all the required contracts and cheques.
➐ Meeting at the Land Department Office to transfer the property to the New owner and the funds will be released to the seller by the lender.