A mortgage is a type of loan that allows individuals to buy real estate. The simple way to put it is that the lender provides you money—after careful consideration of your credit standing—to purchase your property, and you, as the borrower, will need to pay back that amount (plus interest!) in a span of 15 to 30 years.
Today, home mortgage advisor have evolved and now take advantage of the online space to do their job. And with the advancements in technology, AI mortgage services are now available to the public. This means that personalized and affordable options are easily made known to individuals looking for loans through the analysis of your financial data.
Every person ever wondered, how much do I need to buy a house, but do you ever wonder how mortgages came about? How exactly did we get to a time where financial services can be processed through an online platform? Let’s take a trip back in time and learn the origins of mortgages.
History Of Mortgages
In the 1930s, during the Great Depression, families and individuals couldn’t afford to buy a house. Insurance companies used this to their advantage by loaning buyers money. During this time, no down payments were made and borrowers made interest-only payments. This ended in balloon payments—a large, lump-sum amount—which needed to be paid at the end of the term. If the borrowers couldn’t afford to keep up with the payments and fully pay the interest, the insurance companies would gain ownership of the properties.
The modern mortgage market came about in 1934 when President Franklin D. Roosevelt intervened to act on the economic obstacles. It was during this time when the Federal Housing Administration (FHA) was created to provide a new type of mortgage. The FHA not only provided mortgage insurance to borrowers but also began qualifying individuals based on their capacity to pay back the loan and set quality standards for the homes that were fit for a loan.
The challenges experienced through the years led to the amortization of loans. This allowed borrowers to pay incremental amounts of the principal fee—with interest, of course—until the loan is completely paid off.
How Do Mortgages Work Today?
There are 4 elements to a mortgage:
- Principal – The sum you are borrowing less the down payment
- Interest – A percentage charged to the borrower for the loan based on the amount of the principal.
- Taxes – Payments for property tax are put into an escrow account. An escrow is a legal agreement where a third party holds your money until the taxes are due.
- Insurance – A mortgage insurance is a policy that protects the owner from fire, storms, theft, and the like.
To start, the borrower pays a down payment to lower the overall principal fee. The bigger the down payment, the less you’ll have to pay over time. After paying a down payment, monthly mortgage payments begin which consist of a portion of the principal plus interest. The monthly fees are paid over some time until the loan matures.
Types Of Mortgages
There are 2 types of mortgages: Fixed-rate mortgages and Adjustable-rate mortgages. Picking between the two will depend on the borrower’s finances.
A fixed-rate mortgage provides an interest rate that doesn’t change for the duration of the loan. This allows the borrower to pay a fixed amount for 15, 20, or 30 years depending on the loan duration. The only factors that will affect this are insurance and taxes.
Adjustable-rate mortgages, on the other hand, have an interest rate that changes annually. Because of the yearly adjustments, the borrower can enjoy lower interest rates and monthly payments. This arrangement is usually preferred by borrowers who think they won’t be living on their property in the long term.
Everyone wants to own a home eventually, however, not many individuals can indeed make a full payment for a home or property instantly. The best way is to manage your finances and apply for a mortgage when you’re able. After a few years of diligently paying your monthly mortgage payments, you’ll finally be able to relax and fully enjoy your home. Today, there are smarter ways to find lenders in the comfort of your own home. Online platforms—like Home Lending Pal—can connect you to lenders based on your credit score.
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