A mortgage loan , or just a mortgage , is used either by a real property buyer to raise funds to purchase real estate, or alternatively by an existing property owner to raise funds for any purpose , while providing liens on mortgaged property. These loans are "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is enacted which allows the lender to take ownership and sell the secured property ("foreclosure" or "repossession") to repay the loan in the event of a borrower failing to pay the loan or otherwise failing to comply with its provisions. The word mortgage is derived from the term "French Law" used by medieval English lawyers which means "promise of death" and refers to the pledge that ends (death) when the obligation is met or the property is taken through the seizure. A mortgage can also be described as a "borrower who gives consideration in the form of collateral for benefits (loan)".
Mortgage borrowers can be individuals who mortgage their homes or they can become businesses that pawn commercial property (for example, their own business premises, residential properties let tenants, or investment portfolios). The lender will usually be a financial institution, such as a bank, credit union or a building community, depending on the country concerned, and the arrangement of the loan may be made either directly or indirectly through an intermediary. Features of a mortgage loan such as loan size, loan maturity, interest rate, method of paying off the loan, and other characteristics can vary greatly. The lender's rights to secured property are given priority over other borrowing creditors, which means that if the borrower becomes bankrupt or bankrupt, other creditors will only pay the debt owed to them from the sale of secure property if the mortgage lender is paid first full.
In many jurisdictions, it is normal for a home purchase funded by a mortgage loan. Few people have enough savings or liquid funds to enable them to buy property directly. In countries where demand for home ownership is highest, a strong domestic market for mortgages has been developed. Mortgages can be funded through the banking sector (ie, via short-term deposits) or through the capital market through a process called "securitization", which converts a collection of mortgages into exchangeable bonds that can be sold to investors in small denominations.
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Fundamentals of a mortgage loan
Basic concepts and legal rules
According to the Anglo-American property law, mortgages occur when the owner (usually with modest interest in realty) promises interest (property rights) as collateral or collateral for the loan. Therefore, a mortgage is a burden (restriction) on a property right just as ease will happen, but since most mortgages occur as a requirement for new loan money, the word
Mortgage lending is the main mechanism used in many countries to finance the private ownership of residential and commercial properties (see commercial mortgage). Although the exact terminology and form will vary from country to country, the basic components tend to be similar:
- Property: physically financed residence. Appropriate forms of ownership will vary from country to country, and may limit the type of loan possible.
- Mortgage: the security interest of the lender in the property, which may lead to restrictions on the use or disposal of property. Limits may include requirements for buying home insurance and mortgage insurance, or paying off debts before selling the property.
- Borrower: borrower who owns or is making ownership interest in the property.
- The lender: any lender, but usually a bank or other financial institution. (In some countries, especially the United States, lenders may also be investors who have an interest in mortgages through mortgage-backed security.In such situations, the original lender is known as a mortgage lender, which then packs and sells loans to investors. the borrower is then collected by the lender.)
- Principal: the original size of the loan, which may or may not include certain other fees; because any principal is repaid, the principal will fall in size.
- Interest: the financial cost of using the money of the lender.
- Foreclosure or repossession: the likelihood that the lender should seize, take back or seize the property under certain circumstances is essential for a mortgage loan; Without this aspect, these loans are arguably no different from other types of loans.
- Completion: legal settlement of the mortgage deed, and therefore start of the mortgage.
- Redemption: the last repayment of the unpaid amount, which may be a "natural redemption" at the end of the scheduled period or redemption at once, usually when the borrower decides to sell the property. Closed mortgage accounts are said to be "redeemed".
Many other specific characteristics are common to many markets, but above are important features. The government usually regulates many aspects of mortgage lending, either directly (through legal terms, for example) or indirectly (through the arrangement of participants or financial markets, such as the banking industry), and often through state intervention (direct borrowing by the government, loans are direcct by banks state-owned banks, or sponsors of various entities). Another aspect that determines specific mortgage markets can be regional, historical, or driven by the specific characteristics of the legal or financial system.
Mortgage loans are generally structured as long-term loans, periodic payments that are similar to annuities and are calculated according to the time value of the money formula. The most basic arrangement will require a fixed monthly payment of ten to thirty years, depending on local conditions. During this period the main components of the loan (original loan) will be paid slowly through amortization. In practice, many variants are possible and common throughout the world and in each country.
The lender provides funds for the property to earn interest, and generally borrows this fund by itself (for example, by taking deposits or issuing bonds). The price at which the lender borrows money because it affects the cost of the loan. Lenders may also, in many countries, sell mortgage loans to others interested in receiving cash flow from borrowers, often in the form of security (through securitization).
The mortgage lending will also consider (as perceived) the riskiness of a mortgage loan, that is, the likelihood that funds will be repaid (usually considered a function of creditworthiness of the borrower); that if they are not repaid, the creditor will be able to recap the real estate assets; and financial risks, interest rates, and time delays that may be involved in certain circumstances.
Underwriting mortgage
Once the mortgage application goes into the final step, the loan application is transferred to the Mortgage Guarantor. The Underwriter verifies the financial information that the applicant has given to the lender. Verification will be made for the applicant's credit history and the value of the purchased house. An assessment can be ordered. The financial and job information of the applicant will also be verified. Guarantee may take several days to several weeks. Sometimes the underwriting process takes so long that the financial statements provided should be resent so that they are current. It is advisable to maintain the same job and not to use or open new credit during the underwriting process. Any changes made in the applicant's credit, employment, or financial information may result in the loan being denied.
Types of mortgage loans
There are many types of mortgages that are used worldwide, but several factors broadly determine the characteristics of a mortgage. All of these may be subject to local regulations and legal requirements.
- Interest: Interest can be set for loan age or variable, and change in specified period; the interest rate can also be, of course, higher or lower. Term
- : Mortgage loans generally have a maximum period, ie, the number of years after which the amortization loan will be repaid. Some mortgage loans may not have amortization, or require full repayment of the remaining balance at a certain date, or even negative amortization.
- Number and frequency of payments: Amount paid per period and frequency of payment; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
- Prepayment: Some types of mortgages may restrict or restrict prepayment of all or any part of the loan, or require payment of a penalty to the creditor for prepayment.
The two basic types of loans that are amortized are fixed interest rate mortgages (FRM) and adjustable interest rate mortgages (ARM) (also known as floating rates or variable rate mortgages). In some countries, such as the United States, fixed-rate mortgages are the norm, but floating rate mortgages are relatively common. The combination of fixed and floating mortgage rates is also common, where mortgage lending will have a fixed interest rate for some periods, for example the first five years, and varies after the end of that period.
- In a fixed rate mortgage, interest rates, fixed for life (or term of loan). In the case of an annuity payment scheme, regular payments remain the same amount throughout the loan. In the case of linear returns, the periodic payments will decrease gradually.
- In adjustable mortgage rates, the interest rate is generally fixed for a certain period, after which periodically (for example, every year or every month) adjusts up or down to some market indices. The adjustable interest rate transfers a portion of the borrower's interest rate risk to the borrower, and thus is widely used where funding at interest rates remains difficult to obtain or very expensive. Because the risk is transferred to the borrower, the initial interest rate may be, for example, 0.5% to 2% lower than the 30-year fixed rate average; the size of the price differential will be related to the debt market conditions, including the yield curve.
The bill to the borrower depends on credit risk in addition to the interest rate risk. The origination and mortgage underwriting process includes checking credit scores, debt to income, down payment, and assets. Jumbo mortgages and subprime lending are not backed by government guarantees and face higher interest rates. The other innovations described below may affect tariffs as well.
Loans for value and money
After making a mortgage loan for the purchase of property, the lender usually requires the borrower to make advance payments; that is, donate a portion of the cost of the property. This advance can be expressed as part of the property value (see below for the definition of this term). Loan to value ratio (or LTV) is the size of the loan to the value of the property. Therefore, a mortgage loan in which the buyer has made a down payment of 20% has a loan to 80% ratio. For loans made to the property that the borrower already has, the loan to value ratio will be calculated against the estimated value of the property.
The ratio of lending to value is considered an important indicator of the risk of mortgage lending: the higher the LTV, the higher the risk that the value of the property (in case of foreclosure) will not be sufficient to cover the remaining principal.
Value: rated, estimated, and actual
Since property values ​​are an important factor in understanding loan risk, determining value is a key factor in mortgage lending. Values ​​can be determined in various ways, but the most common are:
- Actual or transaction value: this is usually considered the purchase price of the property. If the property is not purchased at the time of lending, this information may not be available.
- Values ​​assessed or surveyed: in most jurisdictions, some form of value judgment by a licensed professional is common. There is often a requirement for the lender to get an official appraisal.
- Estimated value: the lender or other party may use their own internal estimates, especially in jurisdictions where there is no official appraisal procedure, but also in some other circumstances.
Payment and debt ratio
In most countries, a number of standard credit eligibility standards can be used. General steps include payments to income (mortgage payments as a percentage of gross or net revenue); debt to income (all debt payments, including mortgage payments, as a percentage of revenue); and various measures of net worth. In many countries, credit scores are used in lieu of or to complete these steps. There will also be requirements for creditworthiness documentation, such as income tax returns, payroll deductions, etc. The specifications will vary from one location to another.
Some lenders may also require potential borrowers who have one or more months of "backup assets" available. In other words, the borrower may be required to indicate the availability of sufficient assets to pay for housing expenses (including mortgages, taxes, etc.) for a certain period in the case of job loss or loss of other income.
Many countries have lower requirements for certain borrowers, or acceptable "documentary"/"low-document" borrowing standards under certain circumstances.
Standard or appropriate mortgage
Many countries have standard or mortgage ideas that define acceptable levels of risk, which may be formal or informal, and may be strengthened by law, government intervention, or market practice. For example, a standard mortgage can be regarded as one with no more than 70-80% LTV and no more than a third of the gross income that will become mortgage debt.
A standard or appropriate mortgage is a key concept because it often defines whether a mortgage can be easily sold or securities, or, if not standardized, can affect the price at which it can be sold. In the United States, the corresponding mortgage is one that meets the rules and procedures set out of two large government sponsored entities in the housing finance market (including some legal requirements). Conversely, lenders who decide to make unsuitable loans are doing a higher risk tolerance and do so knowing that they face more challenges in reselling the loan. Many countries have similar concepts or institutions that define so-called "standard" mortgages. Regulated lenders (such as banks) may be subject to higher risk limits or weights for non-standard mortgages. For example, banks and mortgage brokers in Canada face restrictions in lending over 80% of property values; beyond this level, mortgage insurance is generally required.
Mortgage currency
In some countries with currencies that tend to depreciate, foreign exchange mortgages are common, allowing lenders to lend in stable foreign currencies, while borrowers take currency risk that the currency will depreciate and therefore they need to convert a higher amount of the domestic currency to repay the loan.
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Refinance the mortgage
In addition to the two standard ways to set the cost of a mortgage loan (fixed at the rate set for the term, or variable relative to the market rate), there are variations in how the fee paid, and how the loan itself is repaid. The repayment depends on the locality, applicable tax and cultural laws. There are also various mortgage payment structures that suit different types of borrowers.
Principal and interest
The most common way to repay a secured mortgage loan is to make regular payments on principal and interest over a period of time. This is usually referred to as (self) amortization in the US and as installment payments in the United Kingdom. KPR is a form of annuity (from the lender's perspective), and the calculation of periodic payments is based on the time value of the money formula. Certain details may be specific to different locations: interest can be calculated on a 360-day basis, for example; interest can be exacerbated every day, every year, or every six months; prepayment penalty may apply; and other factors. There may be legal restrictions on certain matters, and consumer protection laws may establish or prohibit certain practices.
Depending on the size of the loan and prevailing practices in the country, the term may be short (10 years) or long (50 years plus). In the UK and US, 25 to 30 years is the usual maximum period (though a shorter period, such as a 15 year mortgage loan, is common). The mortgage payment, which is usually done monthly, contains principal payments and interest elements. The amount that will lead to the principal in each payment varies over the term of the mortgage. In the early years most payments were interest. Towards the end of the mortgage, payments are mostly for principal. In this way, the payment amount determined at the beginning is calculated to ensure the loan is repaid on a predetermined date in the future. This gives the borrower a guarantee that by maintaining the loan payment will be removed on a specified date, if the interest rate has not changed. Some lenders and third parties offer a biweekly mortgage payment program designed to speed up loan payments.
The amortization schedule is usually done by taking the remaining principal at the end of each month, multiplying with the monthly rate and then reducing the monthly payment. This is usually generated by the amortization calculator using the following formula:
dimana:
- adalah pembayaran amortisasi periodik
- adalah jumlah pokok yang dipinjam
- adalah tingkat bunga yang dinyatakan sebagai pecahan; untuk pembayaran bulanan, ambil (Annual Rate)/12
- adalah jumlah pembayaran; untuk pembayaran bulanan selama 30 tahun, 12 bulan x 30 tahun = 360 pembayaran.
Hanya minat
The main alternative to principal and interest mortgages is interest rate mortgages only, in which the principal is not settled during that time period. This type of mortgage is common in the UK, especially if it is associated with a regular investment plan. With this arrangement, regular contributions are made to separate investment plans designed to build an amount at once to pay the mortgage at maturity. This type of arrangement is called investment-backed mortgage or is often associated with the type of plan used: endowment mortgage if endowment policy is used, as well as KPR Personal Equity Plan, Individual Savings Account (ISA) mortgage or retirement mortgage. Historically, investment-backed mortgages offer various tax advantages on mortgage repayments, though this is no longer the case in the UK. Investment-backed mortgages are seen as a higher risk because they rely on investments that make enough returns to erase debt.
To date it is not unusual for mortgage-only interest to be arranged without vehicle payments, with the gambling borrower that the property market will increase enough for loans to be paid off by trading down on retirement (or when the lease on property and inflation combine to exceed interest rate).
Interest-only debt only
The recent Financial Services Authority Guidance to UK lenders related to interest-only mortgages has tightened new lending criteria by interest only. The problem for many people is the fact that no vehicle payments have been made, or the vehicle itself (such as an endowment policy/ISA) performs poorly and therefore insufficient funds are available to repay the balance at the end of the semester.
Looking ahead, OJK under the Mortgage Market Review (MMR) has stated there must be strict criteria on the payment vehicle used. Thus people like Nationwide and other lenders have withdrawn from a market that is in great demand.
The revival in the equity release market has been the introduction of a lifetime mortgage interest only. Where only-interest mortgages have a fixed term, the lifetime mortgage interest alone will continue for the rest of the mortgagor's life. This scheme has proven to be of interest to people who love the exciting rolling-up effect of traditional equity release schemes. They also prove to be beneficial for people who have interest mortgages alone without a payment vehicle and now have to pay off the loan. These people can now effectively restore to a lifetime mortgage interest alone to maintain continuity.
The lifetime mortgage scheme is just the interest offered by the two current creditors - Stonehaven & amp; more2life. They work by having the option of paying interest every month. By paying off the interest means the balance will remain the same for the rest of their lives. This market will increase as more retirees need finances when retired.
Reverse mortgage
For older borrowers (usually in retirement), it is possible to arrange a mortgage where both principal and interest are not paid. The interest is rolled out with the principal, increasing the debt annually.
This arrangement is called an inverted mortgage, a lifetime mortgage or mortgage release equity (referring to home equity), depending on the country. Loans are usually not paid until the borrower dies, then the age restriction.
Through the Federal Housing Administration, the US government guarantees reverse mortgages through a program called HECM (Home Equity Conversion Mortgage). Unlike standard mortgages (where the entire loan amount is normally cashed upon closing of the loan) the HECM program allows homeowners to receive funds in various ways: as one-off payment; as monthly rent payments continue until the borrower dies or moves away from home permanently; as monthly payments over a period of time; or as a line of credit.
For more details, see equity release .
Interest and partial subject
In the US, partial amortization or ballooning is one in which the amount of the outstanding monthly payment is calculated (amortized) over a specified period, but the outstanding balance on the principal is due at a certain point less than that period. In the UK, partial repayment mortgages are quite common, especially where the original mortgage is a supported investment.
Variations
Passed mortgage loan payments have increased costs over time and are directed to young borrowers who expect a wage increase over time. Mortgage balloon payments only have partial amortization, which means that the amount of matured monthly payments is calculated (amortized) over a specified period, but the outstanding principal balance matures in less than that time period, and at the end of the balloon repayment period is because. When interest rates are high compared to existing seller loan rates, buyers may consider assuming a seller's mortgage. A cover mortgage is a form of seller financing that can make it easy for a seller to sell the property. A biweekly mortgage has payments made every two weeks instead of monthly.
Budgetary loans include taxes and insurance in mortgage payments; loan packages add the cost of furniture and other personal property to the mortgage. The mortgage hike allows the seller or lender to pay for something similar to points to reduce the interest rate and encourage the buyer. Homeowners can also take equity loans where they receive cash for mortgage debt in their homes. The joint award of mortgages is a form of equity release. In the US, foreign nationals because of their unique situation facing the conditions of foreign national mortgage.
Flexible mortgages allow more freedom by borrowers to bypass payments or prepay. Offset creditors allow deposits to be calculated against mortgage lending. In the UK there is also an endowment mortgage in which the borrower pays interest when the principal is paid with a life insurance policy.
Commercial mortgages usually have different interest rates, risks, and contracts from personal loans. Mortgage participation allows some investors to share in the loan. Builders can take a blanket loan that covers several properties at once. Bridge loans can be used as temporary financing while waiting for long-term loans. Real money loans provide financing in exchange for mortgaging real estate collateral.
Foreclosure and non-recourse lending
In most jurisdictions, the lender can recover the mortgaged property if there are some conditions - primarily, not paying for a mortgage loan. Subject to local legal requirements, the property can then be sold. Any amount received from the sale (net of cost) is applied to the original debt. In some jurisdictions, a mortgage loan is a non-recourse loan: if the funds obtained from the sale of the mortgaged property are not enough to cover the debt, the lender may not ask for help to the borrower after foreclosure. In other jurisdictions, the borrower remains responsible for the remaining debt.
In almost all jurisdictions, specific procedures for confiscation and sale of mortgaged property are applicable, and may be strictly regulated by the relevant government. There is a strict seizure or judicial and non-legal seizure, also known as a sales foreclosure force. In some jurisdictions, foreclosures and sales can happen very quickly, while elsewhere, foreclosures may take months or even years. In many countries, the ability of lenders to confiscate is very limited, and the development of the mortgage market has become slower.
National differences
A study released by the United Nations Economic Commission for Europe compares German, US and Danish mortgage systems. German Bausparkassen has reported a nominal interest rate of about 6 percent per year in the last 40 years (in 2004). In addition, they charge administrative and service fees (about 1.5 percent of the loan amount). However, in the United States, the average interest rate for mortgages with fixed interest rates in the housing market began in the tens and twenties in the 1980s and has (in 2004) reached about 6 percent per year. However, the cost of gross loans is much higher than the nominal interest rate and amounted to the last 30 years up to 10.46 percent. In Denmark, similar to the US mortgage market, interest rates fall to 6 percent per year. Risk and administrative costs amounted to 0.5 percent of outstanding debt. In addition, the cost of acquisition is charged which amounts to one percent of the principal.
United States
The US mortgage industry is the main financial sector. The federal government created several programs, or government sponsored entities, to encourage mortgage lending, build and encourage home ownership. These programs include the Government National Mortgage Association (known as Ginnie Mae), the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac).
The US mortgage sector has been the center of a major financial crisis over the last century. Unhealthy loan practices resulted in the 1930s National Mortgage Crisis, the saving and lending crisis of the 1980s and 1990s and the subprime mortgage crisis of 2007 that led to the foreclosure crisis of 2010.
In the United States, mortgage lending involves two separate documents: mortgage letters (promissory note) and guarantee interest as evidenced by "mortgage" documents; generally, both are assigned together, but if they traditionally divide the record holder and not the mortgage have the right to confiscate. For example, Fannie Mae announces the standard contract form of the Multistate Fixed-Rate Note 3200 and also separates the different forms of mortgage instruments of security instruments by country.
Canada
In Canada, Canada Mortgage and Housing Corporation (CMHC) is the country's national housing agency, providing mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research to Canadians. It was created by the federal government in 1946 to address the post-war housing shortage in the country, and to help Canada achieve their home ownership.
The most common mortgage in Canada is a closed mortgage with a fixed interest rate of five years, not in the US. The most common type is an open mortgage with a 30-year interest rate. During the financial crisis and subsequent recession, the Canadian mortgage market continues to function well, partly because of the housing mortgage market policy framework, which includes regulatory and regulatory oversight that applies to most lenders. However, since the crisis, low interest rates have accrued to contribute to a significant increase in mortgage debt in the country.
In April 2014, the Financial Institution Supervisory Office (OSFI) issued guidelines for mortgage insurance providers aimed at tightening standards around risk guarantee and management. In a statement, OSFI has stated that the guidelines will "provide clarity on best practices in terms of mortgage insurance housing insurance, which contribute to a stable financial system." This comes after years of federal government oversight over CMHC, with former Treasury Secretary Jim Flaherty musing to the public as far back as 2012 about Crown privatization.
In an effort to cool real estate prices in Canada, Ottawa introduced an effective mortgage stress test October 17, 2016. Under stress tests every home buyer with less than 20% down payment (high ratio) undergoes tests in which the borrower's ability is assessed based on mortgage rates 4 , 64% with 25 years of amortization if they want to get a mortgage from a regulated federal lender. This stress test has lowered the maximum mortgage amount approved by almost 20% for all borrowers in Canada. The maximum amortization for a home mortgage has been reduced back to 30 years, not 35.
United Kingdom
The mortgage industry in Britain has traditionally been dominated by building societies, but since the 1970s the market share of new mortgage lending held by the building community has declined substantially. Between 1977 and 1987, the share fell from 96% to 66% while banks and other institutions increased from 3% to 36%. There are currently over 200 significant separate financial organizations that channel mortgage lending to home buyers in the UK. Major lenders include building communities, banks, specialized mortgage companies, insurance companies, and pension funds.
In the UK, mortgages with variable rates are more common than in the United States. This is partly because mortgage lending is less dependent on fixed-income securitization assets (such as mortgage-backed securities) than in the United States, Denmark and Germany, and more on retail saving deposits like Australia and Spain. Thus, lenders prefer mortgages with variable interest rates for fixed rates and long-term fixed rate mortgages are generally not available. Nevertheless, in recent years fixing mortgage rates for the short term has become popular and two, three, five and, sometimes, ten years mortgages can be fixed. From 2007 to early 2013 between 50% and 83% of new mortgages have a fixed initial period in this way.
The level of home ownership is proportional to the United States, but the overall default rate is lower. Prepayment sanctions during a fixed interest rate are common, while the United States has discouraged its use. As with other European countries and around the world, but unlike most of the United States, mortgage lending is usually not a nonrecourse debt, which means the debtor is responsible for any credit deficiency after foreclosure.
Aspects faced by customers from the residential mortgage sector are governed by the Financial Conduct Authority (FCA), and the lender's financial honesty is overseen by a separate regulator, Prudential Regulation Authority (PRA) that is part of the Bank of England. The FCA and PRA were established in 2013 with the aim of responding to criticism of regulatory failures highlighted by the 2007-2008 financial crisis and its aftermath.
Continental Europe
In much of Western Europe (except Denmark, Netherlands and Germany), mortgages with variable rates are more common, unlike fixed rate mortgages that are common in the United States. Most of Europe has a level of home ownership comparable to the United States, but the overall failure rate is lower in Europe than in the United States. Financing of mortgage lending is less dependent on securities mortgages and more on official government guarantees supported by closed bonds (such as Pfandbriefe) and deposits, except Denmark and Germany where asset-backed securities are also common. Prepaid sanctions are still common, while the United States has banned its use. Unlike many in the United States, mortgage lending is usually not nonresresent debt.
In the European Union, the volume of closed bond markets (closed bonds outstanding) amounted to about EUR 2 trillion at the end of 2007 with Germany, Denmark, Spain and France each having outstandings above 200,000 EUR million. Securities such as Pfandbrief have been introduced in over 25 European countries - and in recent years also in the US and other countries outside Europe - each with their own unique laws and regulations.
Recent trends
On July 28, 2008, US Treasury Secretary Henry Paulson announced that, along with four major US banks, the Treasury would seek to start a market for these securities in the United States, primarily to provide alternative forms of mortgage-backed securities. Similarly, in the UK "The Government invites views on options for the UK framework to provide longer-term fixed rate mortgages that are more affordable, including lessons learned from markets and international agencies".
George Soros, October 10, 2008, the Wall Street Journal editorial promotes Danish mortgage market model.
Malaysia
Mortgages in Malaysia can be categorized into 2 different groups: conventional home loans and Islamic home loans. Under conventional home loans, banks usually charge a fixed rate, variable interest rate, or both. These interest rates are linked to the base rate (individual bank reference rate).
For Islamic home financing, it follows the Sharia Law and comes in two general types: Bai 'Bithaman Ajil (BBA) or Musharakah Mutanaqisah (MM). Bai 'Bithaman Ajil is when the bank buys property at current market price and sells it back to you at a much higher price. Musharakah Mutanaqisah is when the bank buys your property. You will then slowly buy part of the property bank through rent (where some of the rent goes to the payment for the purchase of part of the bank in the property until the property reaches your complete ownership).
Islamic Countries
Islamic Sharia law prohibits the payment or receipt of interest, which means that Muslims can not use conventional mortgages. However, real estate is too expensive for most people to buy directly using cash: Islamic mortgages overcome this problem by asking the property to change hands twice. In one variation, the bank will buy the house directly and then act as a landlord. Home buyers, in addition to paying rent, will pay a contribution towards the purchase of the property. When the last payment is made, the property changes hands.
Usually, this can lead to higher end prices for buyers. This is because in some countries (such as Britain and India) there is a stamp duty which is a tax imposed by the government on the change of ownership. Since ownership changes twice in an Islamic mortgage, stamp taxes may be charged twice. Many other jurisdictions have similar transactional taxes on possible ownership changes. In the UK, the dual application of stamp duty in the transaction has been removed in the 2003 Financial Law to facilitate Islamic mortgages.
An alternative scheme involves a bank reselling property in accordance with the installment plan, at a price higher than the original price.
Both of these methods compensate the lender as if they are attracting interest, but the loan is structured in a way that the name is not, and the lender shares the financial risks involved in the transaction with the home buyer.
Exceptions
Bali, Indonesia is an exception to mortgage-financed home purchase rules. In contrast, most properties there are paid with cash due to lack of available mortgages.
Mortgage insurance
Mortgage insurance is an insurance policy designed to protect mortgagee (lenders) from any form of negligence by the borrower. This is usually used in loans with a loan ratio of over 80%, and is used in the case of foreclosure and repossession.
This policy is usually paid by the borrower as a component for the final face value (note), or in one lump sum up front, or as a separate and detailed monthly mortgage payment component. In the latter case, mortgage insurance can be imposed when the lender tells the borrower, or his subsequent assignment, that the property has been valued, the loan has been paid, or a combination of both to lower the loan value to a value below 80%
In the case of repossessions, banks, investors, etc. Must use sell property to cover their initial investment (money lent) and can get rid of hard assets (like real estate) faster with price reductions. Therefore, mortgage insurance acts as a hedge if the regenerated authority regains less than full and fair market value for hard assets.
See also
- Commercial mortgage
- No Unsecured Income (NINA)
- Nonrecourse debt
- Refinancing
Related to the United Kingdom
- Buy to let
- Remortgage
- UK mortgage terminology
Associated with United States
- Commercial lenders (US) - a term for lenders who pledge non-residential property.
- eMortgages
- FHA Loans - Associated with U.S. Federal Housing Administration
- Fixed mortgage rate (US) calculation
- Efficient Mortgage Locations - a kind of mortgage for urban areas
- Mortgage assumptions
- pre-approval - US mortgage terminology
- pre-qualified - US mortgage terminology
- Fake mortgage lending
- VA loans - Associated with US Veterans Affairs Department.
Other countries
- Danish mortgage market
- Hypothesis - equivalent in a civil law state
- Mortgage Investment Corporation
Legal details
- Deed - legal aspect
- Lien mechanics - legal concepts
- Perfection - applicable filing requirements
References
External links
- Mortgage on Curlie (based on DMOZ)
- Mortgage: For Home Buyers and Home Owners in USA.gov
- Australian Securities & amp; Investment Commission (ASIC) Home Loans
Source of the article : Wikipedia
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