Home Mortgage - What does it actually mean?

After settling with the decision to buy the kind of house that you have dreamt of, the most important thing that comes into account is the financial factor. In most of the cases, the cost of your dream house exceeds your budget by miles. Home mortgage loans come to your rescue in these kinds of situations. Home mortgage loans can be availed to cope up with the complete payment for the purchase and the money can be returned to your bank as monthly installments.

Mortgage loans are provided to people by almost all the banks under a specific set of conditions and regulations. The first step is a pre-examination of your financial and legal backgrounds. If you are void of any previous fraudulent practices or unpaid debts, you are given a clean chit to go ahead with the mortgage process by the bank authorities. The next process is the verification of your current financial condition. This is to ensure that you will be able to pay your monthly installments without any ambiguities. Once you pass through these two verifications done by the mortgage-providing bank, you directly qualify for the mortgage process.

To avail the full amount for the purchase of your house, you are supposed to pay a portion of the actual amount to the bank as initial down payment. After you make the down payment, the bank pays the complete amount to the seller and you can proceed to register the house under your name. The monthly installments for the mortgage loans are calculated by the bank according to their rate of interest as accepted by you. The house becomes your own property if and only if the whole mortgage amount is paid to the bank. Mortgage loans, in general, extend to a period of five to ten years.

Home Mortgage Insurance

Once the bank issues a home mortgage loan for the borrower, there is no guarantee that the monthly installments for the loan will be correctly paid by the borrower. If, in case, this is not done, the lender suffers a great deal of monetary loss in terms of interest for the money lent. To safeguard them from this loss they put up mortgage insurances, for some of the mortgage transactions, with a third party insurance company. This ensures that their money is safe in times of default by their client.

Lenders do not apply for mortgage insurance for all the mortgage loans that they provide. Those clients who do not make a down payment of more than 25% are classified by the banks as second grade borrowers. These borrowers are not completely trustworthy and are not guaranteed to repay their loans. In such cases, the banks apply for mortgage insurance.

In cases of repeated failures to pay the monthly installments, the bank issues a notice to the borrower. Failure to respond to the notice will lead the bank to foreclose the property and put it up for auction or direct sale. At the same time, they compensate their loss on interest by availing the insurance amount from the insurance company.