A mortgage loan agreement sets the terms of the contract between a lender and a borrower. Once signed, the agreement gives the borrower access to the money. Such an agreement also grants the lender the right to take possession of the mortgaged property if the borrower does not pay the loan’s installments.
Mortgage loans include Federal Housing Administration loans, Veteran Affairs loans, reverse mortgages and balloon mortgages. FHA and VA loans offer eligible borrowers preferential rates and terms. Reverse mortgages are a special type of mortgage loan that allows seniors to borrow money using their home as a collateral without having to pay installments or interest while they live in the house. Balloon mortgages offer low payments for a fixed period and then require payment of the balance in a single installment. The terms and conditions of the mortgage loan type you choose are detailed in the loan agreement.
Mortgage loans list the fees borrowers agree to pay their lenders and agents. The fees associated with a mortgage vary considerably from one lender to another and must be taken into consideration when deciding which mortgage offers the most favorable conditions. Typical fees in a mortgage loan agreement include loan origination costs, broker fees, closing costs and points. Points are a special type of fee you pay in exchange for a reduction of the loan’s interest rate.
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The rate of a mortgage loan agreement determines the interest you will pay on the money you borrow. There are two main types of mortgage rates: fixed and variable. Fixed variables do not change during the life of the loan, which offers the security of knowing how much your payments will be every month. Variable-rate mortgages usually have a lower initial rate than fixed-rate mortgages, but they fluctuate depending on current market conditions.
The government closely regulates the mortgage loan industry and has enacted laws designed to protect the rights of borrowers. The Home Mortgage Disclosure Act, for instance, determines what information lenders must provide and protects consumers from discriminatory lending practices. Another important piece of legislation for borrowers is the Real Estate Settlement Procedures Act, or RESPA. This act requires lenders to provide clear information on the total cost of a mortgage loan, including closing costs.