Although there are different types of mortgages, they all have in common the fact that they are a contract that is signed to obtain bank financing when buying a house. Mortgages have the particularity that the guarantee of the loan is the real estate itself, which also remains in the hands of the debtor while he pays the debt. Didn’t know that? Well, we are sure there are many things that you still need to learn about mortgages and that’s what we will talk about today – let’s discuss more about mortgages!
Is a Mortgage the Same As a Loan?
In common terms, the term “mortgage” is generally used to refer to the financing required for the purchase of a home. We use the two terms as if they meant the same thing, but in reality they are different.
A mortgage is a real right of security that ensures that the debtor will pay the creditor the loan granted for the purchase of the house. If you don’t pay, the creditor has the right to demand the sale of the property to satisfy the amount owed.
The mortgage, on the other hand, is the money the bank lends to the buyer to purchase the home. This is money that you must repay within a certain period of time and for which you must pay interest.
In summary: the security for the loan is the mortgage on the house, while the mortgage is the debt.
Elements of a Mortgage Contract
The mortgage consists of three main elements:
This is the amount of money the bank is lending to the buyer to purchase the home. Depending on the entity, the limit financed by banks is between 80% and 100% of the appraised value, although in some cases it is limited to a similar percentage of the sale value, if the sale value is less than the appraised value.
This is the percentage that the debtor must pay to the bank for the capital borrowed. Depending on the type of mortgage, this interest may be fixed or variable.
This is the period of time set for the repayment of the borrowed money plus interest. In the case of mortgages, this is usually a long period of time because the amount of the mortgage is also high. The longer the repayment period, the lower the payments, but the higher the interest.
Types of Mortgages
The different types of mortgages can be categorized by interest rate, type of payment, type of property or target audience.
Focusing on the interest rate, which is perhaps the most used criterion, they are classified as follows:
Here, the fees do not vary throughout the life of the mortgage. In other words, they are stable and are not affected by fluctuations, which is the main reference index for mortgages.
On the other hand, the interest rate at the time of contracting is higher and the maximum repayment period is shorter than in the case of a variable rate mortgage. In some cases, the partial and total amortization fees are also higher, making it more expensive to prepay the mortgage.
In this type of mortgage, the commission varies according to the interest rate applied at the time of the review. If the interest rate decreases, the payments will also be reduced, but if it increases, they will become more expensive.
In favor of variable mortgages, it should be noted that they have longer repayment periods, up to 40 years, and lower fees than other types of mortgages.
Mixed mortgages combine an initial period with a fixed interest rate, in which the payments are stable, usually in the first years of the repayment term, and a variable interest rate, in which the payments vary according to the evolution of the reference index.
There you are! You now know more about mortgages and the different types that exist. Are you planning to get one? Share in the comments a bit about your current project.