Mortgage - What you should know?by Admin | August 24, 2021
Mortgage and mortgage loan…What is the difference?
To begin with, we have to distinguish two terms: mortgage and mortgage loan. It seems that we are saying the same thing, but there are differences between both concepts:
The most common mortgages on the market are fixed, variable and mixed rate mortgages.
When we contract a fixed mortgage we pay the same monthly installment during all the years that we have it in force. This means that if the bank establishes a monthly payment of $300 per month and we have a 20-year mortgage, during that period we will pay $300 each month.
The costs for processing this type of mortgage tend to be higher. The origination fee, for example, is usually 1%.
In the case of a variable mortgage we will not pay the same every year that the mortgage is in force. The bank will establish revisions of the quota (normally every six or twelve months) in which, depending on the established reference index the monthly quota that we pay will go up or down.
The costs for processing this type of mortgage are lower than in a fixed mortgage. The origination fee, for example, is less than 1% and may even be non-existent.
If we hesitate between a fixed or variable mortgage, there is this type of mortgage which, as its name suggests, is a mixture between a fixed and a variable mortgage. This implies that, during a period of time, we will pay a fixed monthly installment (usually between 3 or 10 years) and, once that stage is over, our mortgage will work as a variable one (the installment changes in the established revisions according to the agreed reference index).
The costs for processing this type of mortgage are usually similar to those of a variable mortgage.
So… What is the difference between the three types of mortgages?
In the following table we summarize the main differences between the three types of mortgages.
Other types of mortgages
Fixed, variable and mixed mortgages are the best known and most used in the market, but there are other types of products depending on other variables:
Depending on the target customer:
Mortgages for young people: the young mortgage is aimed at people between 30 and 35 years old. They offer advantageous conditions and discounts.
Mortgages for non-residents (second homes of foreign residents): since the client does not reside in US, the criteria for granting them are stricter: it is usually required to provide savings to cover expenses and 50% of the purchase price of the property.
Those reserved for certain groups: mortgage loans for civil servants, aviation personnel, employees of large companies, etc.
Reverse mortgage: the reverse mortgage is a financial product aimed at people over 65 years of age and dependent persons. With this product, the value of the home can be converted into money, receiving a monthly payment without ceasing to be the owner of the property.
Depending on the type of property:
Mortgages on bank apartments: these are mortgages on properties belonging to banks, either by adjudication at auction or by dation in payment agreement with clients who have not been able to pay the mortgage.
Mortgages for public or private (subsidized housing).
Mortgages on urban and rural property: valid if the property is duly legalized.
Mortgages for land: normally to finance land for development and to build on it.
For the purchase of a first or principal residence: most mortgages serve this purpose.
To finance a second residence when the client has already purchased his family home.