A mortgage loan is a debt instrument. A mortgage is a loan that used land or immovable assets as a security for the loan. These loans are tied explicitly to a real-estate property, such as land or a house. The borrower signs an agreement with the lender (usually a bank or financial institution) in which the borrower collects cash in advance and then makes payments over a specified period of time until the lender is paid back in full.
The borrower owns the property in exchange for money that is paid in installments over time. It is mostly used to purchase a house; therefore, a mortgage is often referred to as a home/housing loan.
Mortgage loans are designed for home buyers with insufficient cash on hand to purchase the assets. They are also used as collateral to borrow cash from a bank for other purposes that use the home as collateral. Individuals and businesses can use the loan to purchase more properties without paying the entire purchase price in full.
There are several types of mortgage loans, and buyers should understand which is best for them. The most traditional mortgages are fixed for 30-years and 15-years. Many mortgages can be as short as 5-years; some can be extended to more than 40-years.
A fixed-rate mortgage has an interest rate that remains the same for the life of the loan. For a Fixed-rate mortgage, the lender will charge a fixed interest rate throughout the loan tenure. The monthly payment of principal and interest will be the same until the loan is fully repaid. The changes in the market interest rate will not have any impact on the borrower’s existing loan. However, if the interest rate dropped significantly, it is advisable to refinance the loan to enjoy the lower interest rate.
Banks have their requirements for any loan application. Being employed is one of them. Banks would require borrowers with the ability to produce income, as this is an indication that the borrower is capable of repaying the loan. It would be an automatic refusal if you failed to prove that you are under employment or producing enough income during the loan application process.
Even if it is proven that you are employed, but any changes to your income is a key factor that affecting your loan application. Although your credit rating does not indicate your current level of income, banks will require you to disclose the information for further assessment. A few Ringgit Malaysia less than the bank’s requirement; your application may be rejected.
The bank will have access to your all track records, this includes any late or overdue transactions; and whether you made minimum or maximum payments. It also indicates the remaining monthly balance. From here, the banks will assess your credit risk and understand whether you are a trustworthy borrower.
Some of us may not have credit cards and other financial commitments because we are too worried to spend. While this might be a good thing, but it does not help when it comes to the loan application. This is because the bank will not have enough information to make a decision, insufficient information to decide whether you are a good paymaster or vice versa.