Mortgage – Basics Explained
July 11, 2009,
The word “Mortgage” is derived from both French and English language.” Mort” in French means “Dead” and “Gage” means “Pledge” as per old English. Nowadays the term mortgage is commonly used for loan purpose to purchase a property. Five main criteria involved in mortgage are as follows:-1. Borrower’s Potential or Affordability
2. Proof of Income
3. Term of the Mortgage
4. Loan to Value Percent
a)Borrower’s Potential or Affordability: Any Lender would always calculate the customer’s income potential first to check if the customer can repay the loan amount. The lender would calculate the living expense and current commitments of the customer and based on that maximum loan amount is decided. Affordability is also based on the income stretch which means the calculation that involves all the expenses of the customer to his monthly income. In case of Joint mortgage affordability is calculated based on the income of both the applicants.
b)Proof of Income: Proof of income should be provided in order to sanction a mortgage, bank statements and Pay slips are usually requested to prove Proof of income. Pay slip provided should always match the bank statements so that, it will be an easy task for the lender to approve a loan. Lender would always require minimum of 3 to 4 months pay slip and also the bank statement. If the customer is self employed then the Lender would request for tax returns or self assessment statement. In some cases the Lender would request the documents to be certified by a professional.
c) Term of the Mortgage: Mortgage term determines the monthly payment of the customer towards his mortgage. Mortgage term is usually calculated based on the age and the service limit of the applicant. If the applicant is of young age, then the term of the mortgage can be increased accordingly in the same way if the applicant is nearing the retirement age the term that can be sanctioned will considerably be reduced. Higher the term, lower the monthly payments. Though the term is increased the interest paid by the customer on the whole will be more when compared to shorter term mortgage.
d) Loan to value percent: Loan to value percent is nothing but the Ratio of loan approved to the total purchase price of the property. Loan to value