At first let’s look at the history of mortgage loans. In English mortgage loan is called “mortgage”. This English word comes from the French language, where it means “a pledge of death”, because loan commitments can be ended in only two ways – by repaying the loan or by taking away the property. First mortgage loans were issued in the beginning of 20th century when they were called hypothec loans. The amount of these mortgage loans were 50% of property value and they had to be repaid in time of 3 to 5 years. Prosperity of mortgage loans started in the year of 1930 when economical crisis of America started. In the period of economical crisis mortgage loans were cheap and available.
Mortgage loans is a type of long term loans whose guarantee is real estate collateral. This real estate can already be yours or it can be the real estate whom you are planning to buy or build. This type of loan is usually used for purchase or construction of home, for home repair or improvement, as well as for other bigger purchases which are connected with real estate.
Taking into account that mortgage loan is guaranteed with the real estate, lender has rights to its parts. Only when the mortgage loan is totally repaid, borrower becomes a full-fledged owner of its real estate. Mortgage loans are issued both by banks and non-bank lenders. Banks ensure lower interest rates, but it is easier to form and get the mortgage loans from non-bank lenders.
The maximum repayment term of these loans is from 15 to 40 years, depending on lender’s conditions. The amount of first installment may be from 10% to 30% from the value of real estate. The maximum amount of mortgage loan may be from 50% to 90% from the value of real estate. Interest rates of mortgage loans are calculated, basing on variable interbank rate and additional bank rate. Interest rates of these loans ranges from 3% to 7%. Bank rate is determined individually, basing on different criteria, for example, amount and stability of borrower’s income, previous collaboration between bank and borrower, value of real estate collateral etc. Borrower has rights to choose variable or fixed interest rate.
It is possible to get the mortgage loan in different currencies, but it is recommended to form the loan in currency of borrower’s income currency, avoiding currency fluctuations and risks which can increase loan expenses. There is also possibility to get the mortgage payment holidays when the borrower pays only interests. Of course, in order to get these holidays borrower has to have serious and well-founded financial reason.
Lender estimates such criteria as potential client’s ability to pay, credit history and the guarantee. Borrower’s income has to be official, stable, regular and sufficient. It should be mentioned, that monthly payment for mortgage loan cannot be bigger than 40% from borrower’s income. If borrower’s ability to pay is insufficient, mortgage loan has to be guaranteed with guarantor which guarantees that the loan will be repaid with borrower’s or with guarantor’s means.
Borrower’s credit history has to be positive, namely, there can not be late payments and outstanding loan commitments. Lenders estimate the quality and liquidity of real estate, therefore, the higher real estate’s quality, the more favourable loan conditions. However, mortgage loans have very low risks for both parts, because they are guaranteed with real estate collateral with whom it is easy to manipulate.