The Real Estate Mortgage: An Instrument Of Stability


The real estate mortgage is used today by most people to complete their home purchases. Real estate mortgages have been instrumental in providing stability, comfort and happiness to many people by making what otherwise would be an unaffordable house, affordable.

Some real estate investors also make use of the real estate mortgage to complete their investment property purchases. However, a real estate mortgage is not free money and anyone who buys real estate or plans to buy real estate using the real estate mortgage must understand the concept of this instrument very clearly.

Real estate mortgage – also referred to as real estate loan or real estate financing- is the money that you borrow from a private or institutional entity (usually a bank or mortgage lender) for the purpose of buying a property.

A real estate mortgage generally covers the major portion of your purchase price and the remaining portion must be paid by you in the form of a down payment, which is usually a percentage of total purchase price. That percentage is dependent on a number of factors and you can generally reduce it to even 5% by opting for Private Mortgage Insurance (PMI).

FHA and VA mortgages (i.e. mortgages insuranced through FHA and those guarantee through the VA) reduce the down payment requirement on the purchase transaction even further thus making the real estate mortgage that much more important a factor in the home purchase. Whatever you borrow from the mortgage lender for your real estate mortgage needs must be repaid over a period of time and, of course, you will also need to pay appropriate (or prevailing) interest rate on that mortgage.

The term of your real estate mortgage and the prevailing market rate will determine the amount of interest you pay on that mortgage. Generally, you are required to repay the real estate mortgage in the form of monthly instalments which consist of both interest and principal portions of your loan. Also, there are various types of real estate mortgages, described as fixed interest rate mortgages, adjustable interest rate mortgages and hybrids (a combination fo the two).

So depending on what type of real estate mortgage you decided on, your monthly payments might either remain constant (fixed rate) for the full term of the mortgage or is adjusted periodically (adjustable rate) on the basis of a financial index. Besides that, some other costs are also associated with real estate mortgages which are commonly referred to as closing costs, which may include inspection fees, attorneys’ fees and title charges, among others.

Some properties may need certain repairs, which could have an impact on the appraised value and, as a consequence, could affect the mortgage approval amount. If such is the case, there will need to be a discussion between buyer and seller as to who will absorb the costs associated with the repairs.

So, really, you need to understand the concept of real estate mortgages and the related costs clearly before you actually decide on your home purchase and the type of mortgage you will utilize, since your ultimate goal is to be secure in your new home with the least chance for expensive surprises.