Many of my clients who are new to the field of real estate business usually have a lot of doubts about different terms that is associated with the real estate world. They are curious about almost everything because of different unfamiliar concepts and ideas they will encounter during the process of selling or buying. One of the topics they are most curious about is ‘mortgage’, as it plays an important role in any real estate deal.
So, what exactly does the term mortgage means? Mortgage means a pre-approved loan that a lender, usually a bank, will provide to the borrower to purchase a property or any other real estate material. The lender considers the purchased property as collateral and lends the money to the borrower under certain conditions and agreements. The borrower is supposed to pay back the mortgage money plus the interest within a specified period of time set by the lender. Lenders will cross-check whether the borrower is able to pay back the amount or not.
Let me make it clear with an example. Suppose you are interested to buy a property at a particular place but does not have enough money with you right then to pay. In such cases you can rely on a bank which will help you to settle the rest of the amount. You can buy the property with the amount that the bank will provide in return to the property itself as collateral. The bank will provide a specified amount to cover the expenses for buying the property under the promise that you will repay the amount under a specified period of time. You can decide the period of time by which you will completely repay the borrowed money. If you are taking a mortgage for, let’s say 20 years, you can repay the amount by that period. You can repay the amount in installment wise.
Merits : Risk sharing
You don’t have to take the entire risk of spending the amount at the time of buying the property. The lender will share the risk of the purchase with you. The risk can be shared and there will not be much stress on you since the amount can be repaid at a later time.
Time to repay
One of the main advantages of mortgage is that you will get enough time to repay the loan depending upon the period of your mortgage plan. You can arrange the amount according to your convenience and repay it in small installments. You can be at ease because you need to manage only a small amount of money in a month. The extra amount can be invested in something else which can bring profit for you.
Demerits: You cannot resell the property
Even if the property is under the buyer’s name, they won’t be able to resell the property to a third party. The buyer will only get the right to resell the property after repaying the entire amount he/she has borrowed from the lender. The lending institutions will also have a right in your property and they will not allow you to sell it without completing the mortgage plan.
You might have to pay much higher amount than the actual rate of the property as interest. Every mortgage plan will have an interest rate depending upon the period and amount. You will end up paying a higher amount to the borrower and this can be a loss for you.
Professional realtors will always advice the buyer to get a mortgage first and then finalise the desired property. It will help them to find the best offer for you since they know how much money you can spend for buying. Before taking a decision, discuss the details with your realtor so that they can help you professionally.