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Many assets that people possess would not be possible to own if they were required to acquire them with their immediate cash resources.
One of the channels that an individual or company can make use of to take possession of assets such as a house or other property is via a mortgage.
A mortgage is essentially a loan secured by the specific property for which the money has been borrowed and which the borrower is obligated to pay back with a predetermined set of payments.
Over a period of years, the borrower repays the loan, plus interest, until he/she owns the property free and clear.
Mortgages are also known as “claims on” or “liens against” a property, meaning that if the borrower stops paying the mortgage, the lending agent can take possesion of it (i.e. foreclosure)
In a residential mortgage for example, a home buyer pledges his or her house to the bank.
The bank has a claim on the house should the home buyer default on paying the mortgage.
Mortgages can come in many forms with two of the most popular being fixed-rate mortgages and floating-rate (also known as adjustable-rate) mortages.
With a fixed-rate mortgage, the borrower pays the same interest rate for the life of the loan.
The monthly principal and interest payment never change from the first mortgage payment to the last.
In the case of a fixed-rate mortgage, if market interest rates rise, the borrower’s payment does not change.
With a floating-rate mortgage, the interest rate is fixed for an initial term, but then it fluctuates with market interest rates.
If interest rates increase, the borrower may not be able to afford the higher monthly payments.
Interest rates could also decrease, making an the floating-rate mortgage less expensive.
Most mortgages tend to span a period of between 15 and 30 years.
Mortgages tend to make up a significant portion of the lending portfolio of commercial banks and other financial institutions.
Along with commercial banks, companies such as T&T Mortgage Finance and the Home Mortgage Bank offer mortgage loans.
According to data from the Central Bank, Real Estate Mortgage Loan Rates averaged 7.50 per cent for 2016.
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