A Loan That Uses Real Estate As Capital Is Known As Mortgage

Category: Finance, Mortgages.

A loan that uses real estate as capital is known as mortgage. Mortgages may be classified as residential or commercial mortgages.

A mortgage loan rate, on the other hand, is defined as the interest rate charged on a mortgage. In a residential mortgage, the self- occupied residential property of a borrower is provides a collateral. In the case of commercial mortgages, the collateral is usually a commercial building, a store or, an office other business real estate. A commercial mortgage is a loan in which a real estate occupied by a borrower other than a residential property is provided as collateral to secure payment of the principal and interest, or just the interest. Commercial mortgages are typically made by businesses that need the money for working capital, or expansion, purchasing new equipment. The residential mortgage loan rates differ from the commercial ones as the rates are usually higher for commercial mortgages and this is due to the risk associated with residential mortgages and the default percentage is lower compared to commercial mortgages. Since a business may be formulated as a partnership, or a limited, corporation liability firm, the business assessment of creditworthiness by a financial institution is relatively more complex.

Mortgages can be classified as fixed rate or adjustable rate mortgages. The initial interest rate of an adjustable rate is actually lower compared to the fixed rate mortgage. Both of these mortgages may be obtained for residential and commercial properties. Mortgage loan rates are governed primarily by the Federal Reserve Board and so, if the board changes the interest rates, the mortgage lenders should adjust their interest rates accordingly. Generally, lower rates can be availed if you pay a 20% down payment or more of the loan amount. They are also influenced by many market and economic factors such as inflation. On the other hand, if you pay a down payment of 5% or less of the loan amount, you may only have to qualify for a higher interest loan.

Long term loans have slightly higher interest rates than the short term loans and the difference is usually below 1% . Mortgage loan rates usually fall somewhere between 5 and 13% . Loan rates also differ with mortgage loan types such as FHA loans, commercial loans, VA loans, home equity loans, and bad credit, home improvement loans/ sub prime mortgage loans.