Understanding Mortgage Loans: Types, Terms, and Early Repayment
Understanding Mortgage Loans
A mortgage loan collateral is materialized in the real estate mortgage in favor of the entity providing the money. The entity would become the owner of the house in case of failure to achieve the established covenants. A secured loan mortgage is a type of loan that allows owners to acquire a loan plus the mortgage/lien using a portion or all of the equity in your casa. It is generally a second mortgage on the property.
Adjustable-Rate Mortgages
Given the variation that the interest rate sometimes has, financial institutions offer loans at interest rate revision in line with certain economic indicators like EURIBOR. So, if at any time the interest rate changes, it is necessary to calculate the new payment amount based on the new rate. The terms to formalize the loan are agreed upon, including the various interest rates and the periods in which such rates will be valid. Each period will have an interest rate agreed upon in advance.
Loan Termination
Usually, the proposed borrower, if you have surplus funds, will have to see to what extent you offset the early termination, taking into account the commission or penalty that will make the annual cost greater. If the market interest rate is lower than that paid for the loan and you have no surplus funds, it will compensate you to repay the loan you have and hire a new cheaper interest rate, provided that the cancellation fee and formalization of the new loan do not absorb the difference. If the market interest rate is higher than the interest rate on the loan and you have a cash surplus, you would not care to cancel because you can sell your surplus cash in the market and obtain a higher than current interest.
Early Repayment Mortgage
An early repayment mortgage is a decision usually left to the end of the year, when it comes to balancing the tax bill and the taxpayer recalls the benefits of paying the fee every month religiously. But anticipating the return of that loan has clear advantages that make it advisable to depreciate in any season, even above the level that allows the deduction in the income statement. In fact, if you have hired a mortgage, there are few investment options more attractive than early repayment, both financially and fiscally.
Loans with Personal Guarantees
Loans with personal guarantees are those in which the lender gives the loan solely with the borrower’s creditworthiness after a detailed study of it. Also falling into this classification are the guarantees formalized through guarantees. A guarantee is a commitment by a third party to meet the obligations of repaying the loan if the borrower fails to meet this commitment. An example is parents who guarantee the loan of their children.
Loan Collateral
Loan collateral in this case is a real good, real or personal property that guarantees the success of the operation. If the goods supplied are movable, for example, a stock, a stock, an imposition on time, the loan is called a loan secured by pledge. If a property, such a loan is called a mortgage loan.
Loans with a Guaranteed Interest Rate
Loans with a guaranteed interest rate are a formula that is now being used at a time of low interest rates. This loan is applied as a variable interest rate differential EURIBOR +1, while the EURIBOR does not reach a determined value, at which point the rate becomes fixed at a predetermined value. Thus, the borrower is covered with respect to interest rate hikes that would make it difficult to meet its commitment to repayment.
Loans at Variable Interest
Loans at variable interest are the most commonly used today. It sets an interest rate of the transaction in a spread on an interbank rate, the interest rate at which banks lend, usually the EURIBOR. The interest rate applied in the operation is the sum of EURIBOR plus spread, e.g., the EURIBOR plus one. The contract also specifies how often the EURIBOR applied will be reviewed, which depends on the maturity of the operation.
Canceling a loan early means depreciating before the time agreed, thus altering the conditions of the contract.