The most common form of the mortgage and most preferred method of obtaining a mortgage loan can be termed the conventional mortgage. This form of a mortgage also implies the first mortgage given to a borrower, and that the buyer gives a minimum of twenty five percent of the purchase price on the property as a down payment to the lender.
A conditional clause is often inserted in any mortgage agreement when it is being created; this clause usually gives the buyer approximately ten days to arrange a new mortgage in the event of a failure to commit to the terms of the mutual agreement - the contract.
When the buyer and seller have made the purchase agreement, the buyer must make an application for a mortgage at once, this step is normally suggested by the real estate broker who arranged the sale, to a mortgage lender like a bank for example, or insurance or perhaps a trust company.
When making the application for a mortgage, all buyers are advised to take suggestions given by the real estate broker; as such a broker is likely to be well informed and will know where the best flow of money can be found. The broker is also likely to know about places where the buyer will receive the fastest processing on the mortgage application.
A conditional clause can be avoided by a buyer of means who has an excellent credit rating; such people may have bought the property without the conditional clause for the simple fact that they would have faced no difficulty in getting sufficient financing for the purchase. Many sellers are more likely to sell without a conditional clause in the mutually agreed sales agreement.
Buyers must almost always agree to a clause that permits them to prepay ten percent of the value of the loan once in a calendar year falling on the anniversary date of the loan, without attracting financial penalty - many sellers will include this clause in the contract. Some lenders may also in cases permit prepayment upwards of fifteen percent annually to their lenders through this clause.
In another form of this clause, some sellers permit buyers to increase their monthly payments by a factor of ten or fifteen percent depending on the type of agreement.
In the market, certain lenders also offer both options on prepayment. If a buyer deals with such lenders, he or she may be able to increase their monthly payment by ten percent as well as prepay an additional ten percent lump sum on an annual basis. It is necessary to know that an increase over the regular or monthly payment will always be credited against the principal balance remaining.
Many lenders will also offer buyers life insurance at some extra cost, this insurance is meant to cover the mortgage amount in the event of death. Some lenders also offer insurance to cover job loss and unemployment. Lenders will offer weekly, biweekly, or the usual semi-monthly or monthly payment plan to their buyers. The more frequent the payments made by the buyer, the more the savings on interest cost to the buyer over the life of the mortgage in such deals.
Certain lenders in the market will also accept extra payments from buyers and when such buyers run into financial hard times and perhaps miss making a payment or two, the extra payments they previously made will be credited as regular payments by the lenders and non-payment in this case will not be regarded as defaulting on payments. This works out well for buyers and sellers.
Many lenders in the market will also waive the financial penalty of paying the mortgage in full when and if a person sells the home, in addition, some other lenders will also permit a person to transfer the mortgage to another property owned by the person, they may increase the mortgage, they may even blend the rate and put it on the new home purchased by the person.
Borrowers can resort to some measures to avoid paying the penalty on the mortgage. As these alternatives exist, it is increasingly getting harder to discover property for sale, in which a vendor requires the buyer to assume the mortgage on the property. In normal practice, the lender will normally ask that the buyer wishing to take on an existing mortgage be found qualified and approved under certain criteria set up by the lender.
When an individual buyer finds that he or she is obligated to prepay the mortgage over and above the stipulated limits or is under compulsion to payoff the mortgage in full - the penalties that will have to be paid are normally three months' interest or the amount is based on the interest rate differential, the greater of this two amounts will form the penalty amount. To illustrate this clearly, let's say that the principal balance remaining is one hundred thousand dollars. At the current interest rate in the market of about nine percent yearly, the interest rate charged will be ten percent annually and let's say two more years remain in the term. When the buyer pays the hundred thousand dollars in full, the three months' interest charged would fall at two thousand five hundred dollars, while the interest rate differential would work out at, ten percent minus nine percent multiplied by one hundred thousand dollars for two years or two thousand dollars.
In this example, the three months' penalty turns out to be the greater amount; hence, the two thousand five hundred dollars will be the amount that must be paid.
The buyer also can look forward to the fact that the market is saturated with potential lenders. As the market is a very competitive one. Many lenders are willing to pay all the legal fees and the application cost when a buyer transfers a mortgage from another lender, so all potential buyers are advised to look around for the best deals.