Illinois Mortgage & Finance

What is a mortgage and what are its general rules? A mortgage is a loan which is given to a borrower by a lender in lieu of a property/house which has to be paid over a fixed period of time. Interestingly, the word originates from the French word ‘mort’ which means dead and the old English word ‘gage’ which meant pledge. According to Sir Edward Coke (1552-1634) the word originated from the idea that there used to be tremendous amount of doubt in the early days whether the borrower would be ever able to repay the loan amount. In fact, in early days, the land which a borrower bought with mortgage loans was taken away from him if he did not repay the loan within the stipulated time. The land was therefore called ‘dead’ to the mortgagor. Today, there are numerous mortgaging companies with an equally high number of mortgage plans – which can suit nearly everyone. Before you choose a particular mortgage plan, the first thing you ought to look at is whether you are in a capacity to repay the loan amount within the fixed time period. Home mortgages are the most common type of mortgage loan people take. Here are some of the general rules of a mortgage:

• After you have selected a house which you wish to buy, you would approach a lending institution who will arrange for the mortgage loan. The first thing that you look for is the amount of interest that you will have to pay for the loan. Each mortgage company has their own interest rates which vary and can differ as much as 1%. The lower rate of interest you choose, the lesser you have to pay every month.

• Mortgage term is the term used to specify the time period for which you are taking the loan. This is a pre-determined and mutually-agreed tenure. Most mortgage companies would lure you to stay with them through out the mortgage term and will charge you an exit penalty in case you decide to change the mortgage company. for instance, you might have to pay 5% of the total money you owe a mortgage company if you switch to another company during the tenure of the loan. The most likely situation is that the lower the interest, higher the exit penalties.

• Mortgage insurance is the insurance which you do for your new home to protect against fire, calamities, etc. Similarly you also insure yourself, in case some unfortunate events like death, accidents etc occur during the tenure of the loan and you are unable to repay the monthly installments. If your life is insure, this amount can be used by your successors to repay the mortgage loan, or else, they may have to evict the premises.

• The amount of loan that you ultimately repay for the mortgaged property will be significantly higher than the original loan that you took from the mortgage company. if you took a loan of $100,000 for a house, you would have paid $250,000 over a period of 25 years to the mortgage company. In the meantime, due to inflation, the value of the property would also have increased to a similar amount in the 25 years. Thus, if you had kept the money in the bank, it would have accrued same kind of increment in these years.

• If you have an interest-only mortgage, such as an endowment or ISA mortgage, you could pay off your loan early by making regular additional repayments against the interest.