If we are in calmer economic times, I believe most of us wouldn't bother going online to Google what mortgage is. But in these hard and trying times, understanding what mortgage is and how important it is to us will provide us with very relevant information.
The U.S. economic crisis has been undoubtedly caused by the housing bubble burst. Defaulting mortgage rates and high interest rates paved the way for thousands of home foreclosures across the country. Then, financial lending tightened, causing more trouble for the economy. Before we knew it, were in a recession.
Everything can be traced to one thing: mortgage.
A mortgage is the transfer of an interest in property to a lender as a security for a debt. This is usually a loan for money. In other words, it is a lenders security for a debt. When you buy a house, you get a mortgage loan from the bank or any lender. Taking a mortgage loan means you are entering into an agreement to pay the lender a certain amount each month depending on the mortgage rate. It used to be easy to get a mortgage several years ago, during the housing boom, when banks/lenders easily approve loans to people. During those times, you can get a mortgage even without proving that you have enough means to pay for the house.
Then homeowners started falling behind on their mortgage payments. Mortgages defaulted and homeowners were subjected to foreclosures. Welcome to the recession. Now, lenders have tightened lending standards. You wont get a mortgage as easily as before. You have to show enough proof that you have the financial ability to pay for your house. And with the high unemployment rate, you can bet that getting a mortgage loan is like going through the eye of a needle. But if you do get approved for a mortgage loan, you must make sure that you know which type of mortgage loan you should get. This will spare you from future problems.
There are several mortgage loan types to choose from: fixed-rate, adjustable-rate, balloon, and convertible.
Fixed-rate – this is the traditional type of mortgage loan. You have a fixed payment all throughout the life of the loan. Adjustable-rate – these are loans that change each year. Your payment can start low and then are very likely to climb up. Balloon mortgage – has a lower interest rate because you pay off the loan in five to seven years time. Convertible mortgage – this type allows you to change the interest rate after a specified time or change in interest rates.
