Getting a mortgage for your real estate investment
A mortgage or a mortgage loan is a way in which a purchaser can get funding for acquisition of real estate property. It is a loan that specifically helps you to raise the required amount of capital. You enter into an agreement with your bank or a mortgage institution which pays the money upfront for the property. The money is then repaid to the bank in installments over an extended time period. Most mortgage loans are repaid within a span of 20 to 30 years. One can opt for a shorter period of even 10 years. Below in this article, you’ll find more information suggested by leading Mississauga Realtor Akbar Zareh to help you understand the different types of mortgages and ways to obtain them.
The word mortgage is a derivation from a French word meaning “death pledge”. Not to be taken literally however, as you do not actually sign a pledge for your demise. The idea is that the agreement comes to a closure after repaying the whole amount(dying of the loan) or the property is taken from you i.e. repossession or foreclosure. In simpler terms, the bank/financial institution owns the real estate property until you finish servicing the loan. Afterwards, the property is handed to you.
Advantages of a mortgage loan
- Providing cash upfront for real estate property
A mortgage loan provides a lucrative opportunity in terms of finance for real estate property. Most individuals do not have enough liquid cash or savings to buy a house, commercial real estate or rental properties. The mortgage helps you to acquire the property instantly and pay later.
- Long repayment period
Buying real estate may force you to fork out a large amount of money which may strain your finances. A mortgage loan, however, gives you the option of paying the amount in installments for up to 30 years. This makes it easy on your pocket and the money in your savings can be used on other investments.
- Property increases in value
As you repay the loan over the many years, your property continues to increase in value. This is because your house or commercial building is an asset. Assets generally increase in value over time making you profit in the long run.
- Great way for obtaining credit
If you already own a house or other real estate property, you can access a loan easily from a bank. Your current house will be used as security for the loan. This is advantageous because you can be loaned a large amount of money since real estate is extremely valuable property.
Repaying the loan
When applying, you get into an agreement with the financial institution over the repayment period. The institution will determine the installments using either payment to income ratio (mortgage installments compared to income) or debt to income ratio (all debt payments including mortgage as compared to income). One must also prove to be credit worthy and your credit score will be checked before the loan is given to you. The installments have to be paid in full so that the property is handed to you at the end of the repayment period.