Mortgage was founding of the first legitimate commercial bank in 1781. Over the past centuries, Mortgage now has been modified and regulated to be a relatively mature industry. People use mortgage to archive their home goal or other financial purpose.
The fluidity of the fund is always the priority to the bank/financial institute; therefore, secondary market plays an important role in the mortgage industry.
In mortgage secondary market, banks would generate their funded loan as a package, then sell it to other banks to get the money back. For example, Chase Bank funded a 1 million loan to borrower Jason to buy houses. Once Jason signed all the documents and houses transaction actions have been done, this is called a closed loan, and it’s available to be traded on the secondary market. Because of the interest occurring, the loan becomes profitable. Banks will buy this loan as a long-term investment, or they can sell it right away for profit. However, to ensure the stabilize of the secondary market, U.S. government sponsor Fannie Mae and Freddie Mac to guarantee these closed loans can be buy back under their underwriting guidelines, which means, if banks want their loan to be secured by the Fannie and Freddie, they must follow these underwriting guidelines.
People and businesses use mortgages to buy real estate without having to pay the full purchase price up front. Borrowers repay the loan and interest over a specified number of years until they are free and clear in possession of the property. A mortgage loan is also known as a property lien or claim. If the borrower stops making mortgage payments, the lender can foreclose on the mortgage. For example, a home buyer mortgages their home to their lender, which then makes a claim on the property. This ensures the lender's interest in the property if the buyer defaults on its financial obligations. In a foreclosure, the lender can evict the resident, sell the property, and use the proceeds to pay off the mortgage debt.
Potential borrowers begin the process by applying to one or more mortgage lenders. Lenders will require evidence that the borrower can afford to repay the loan. This could include bank and investment statements, recent tax returns and proof of current employment. Lenders also usually conduct credit checks. If the application is approved, the lender will offer the borrower a loan of up to a certain amount and a specific interest rate. Buyers can apply for a mortgage after selecting a property to buy or while they are still buying, a process known as pre-approval. Getting pre-approved for a mortgage can give buyers an edge in a tight real estate market because sellers will know they have enough money to back their offer. Once the buyer and seller agree on the terms of the deal, they or their representatives will meet at the so-called closing. That's when the borrower makes a down payment to the lender. The seller transfers title to the property to the buyer for the agreed amount and the buyer will sign any remaining mortgage documents.
Types of mortgages come in many forms. The most common types are 30 - and 15-year fixed-rate mortgages. Some mortgages are as short as five years, while others can be if 40 years or more. Extending payments over many years can reduce monthly payments, but also increase the total amount of interest the borrower pays over the life of the loan. There are several types of home loans, including FHA loans, USDA loans, and VA loans, available for specific people who may have no income, credit scores, or down payments needed to qualify for a traditional mortgage. The following are just a few examples of some of the most popular mortgage types available to borrowers
Fix-Rate Mortgage:
Fixed-rate mortgages With a fixed-rate mortgage, the interest rate stays the same for the entire term of the loan, as do the monthly mortgage payments made by the borrower. Fixed rate mortgages are also called traditional mortgages.
Adjustable-Rate Mortgage (ARM):
Adjustable-Rate Mortgage (ARM) For an adjustable-rate mortgage (ARM), the interest rate is fixed for the initial term and can change periodically thereafter based on current rates. The initial rate is usually lower than the market rate, so it makes the mortgage more affordable at the beginning but possibly more expensive in the future if the rate rises a lot.
Interest-Only Loans:
Interest- only mortgage is fewer common types of mortgages, borrower would only have to pay the interest in the short period of time (usually 5 to 10 years). By the time ends, borrower would need to pay the full principal amount of the loan, or they can refinance the loan into a traditional principal and interest loan.
Reverse Mortgages:
As the name suggests, reverse mortgages are a very different kind of financial product. (This product is designed for elder homeowners who are 62 or older who would like to convert some equity in their home for cash). These homeowners can borrow against the value of their homes and get the money in the form of a lump-sum, fixed monthly payment, or line of credit. When the borrower dies, permanently moves out or sells the home, the entire loan balance matures.
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