Today, the word ‘mortgage’ is very commonplace. It is now a trend to hunt for a good house, borrow money in case you don’t have the needed resources yourself, and to pay for the property upfront. But the question is who do you borrow the money from in the first place, and also how do you decide upon the lender?
Simply put, a mortgage is just like any other loan, which is taken to purchase property, and which is paid back to the lender with interest. A money lender will simply draw up a contract specifying the rate of interest, in how many years the loan is to be repaid, the method of repayment and also when the payment is to be made. Also it is important to remember that a money lender has the right to seize the property, if the repayment is not carried out within the stipulated time.
After seizing the property, it is usually sold, and the money lent recovered from the sale; along with the interest accumulated. Money lenders usually accommodate a borrowers request if he is any kind of difficulty and is not able to pay the money back in the set time. Sometimes payments can be reduced for a small period, a payment holiday can be given, or the term of the mortgage can be increased too.
A bank however has a slighter different approach. Usually there will be an employee associated with the bank who would be handling clients on a one on one basis. This way, the family taking the mortgage would be in better hands, as they have a more experienced person to guide them on different matters. Moreover, having a ‘personal advisor’ also means that there is a person to clear your doubts or questions, if any. Banks these days, try their best to charge competitive interest rates, and also give larger loans. Due to the competition in the financial sector, many banks also offer customer friendly services such as payment of the first installment after a month of taking the loan, or even automatic debits of the installment amount from the bank account etc. Banks also offer online customer support and online applications for mortgages.
In order to find a good money lender or a bank, people in need also approach a ‘broker’. A broker actually works as a link between the person who wants to take a mortgage and other individuals or businesses. It is his job to find a lender who meets his client’s specifications but who is also flexible and gives out loans at competitive interest rates. A broker may resort to using marketing tactics in order to get clients either by advertising on the net or through some other means, He first takes a note of his client’s circumstances, and assesses the financial condition. Some key factors to look at include the client’s credit history, existing debts or loans , the affordability and also the source and flow if income. He then takes a look at the mortgage market to find a lender who suits the specifications. Sometimes, different banks and other lenders have a prior understanding between each other. This means that if a broker gets a client, he will pass the client on to the bank or the money lender for a fixed amount of commission. This kind of an understanding works for both parties.
After the lender is decided upon, the broker will apply for a loan to the lender on his client’s behalf to check if the lender approves of the same. If all goes well, some other documents such as pay slips, bank statements are collected from the client, and then handed over to the lender. It is important to remember that a broker will never take money from the lender is his own name for a client. After the lender gives the go ahead, an application form is then formally filled out, and any other needed material is also submitted to the lender. Before a formal contract is drawn up, it is the broker’s responsibility to explain to his client all the legal implications and the terms and conditions of the contract.
Mortgage brokers themselves are a huge business, with immense competition among themselves. Most often, they hire marketing people who would make ‘cold calls’ so that the chances of getting a customer randomly are high. Such firms also usually fix the commission depending upon the amount of money being lent out to the customer also. Different countries have different laws pertaining to brokers. However, a growing concern among people is also the chances of getting duped by a firm that doesn’t really exist. Which is why some points should be kept in mind before signing up with such a brokerage firm-?
- Make sure the firm has a good reputation and is credible in nature.
- This also means that a brokerage firm should be able to show any relevant documentation as and when required or asked for.
- Make sure you do not give in any money to a brokerage firm without understanding what services they offer.
- Should a firm insist on a small down payment before offering you any service, ensure that you are given a receipt for the same.
- Be aware of all the services that a firm offers and look carefully for any ‘hidden’ costs which may reflect in your bill.
- Also remember that most firms have a prior understanding with banks or other lenders, so carefully looking at the market to see if you have gotten a competitive interest rate or not is important.
- At the same time, ensure that you have a broker who is not biased towards any one lender but who views lenders in an objective manner. Stay wary of brokers who keep insisting that you sign up for a mortgage with one or two banks only and avoid the rest.
- Ensure that the broker you deal with keeps you informed about any and every decision or move, before he signs anything on your behalf.
- Ask your broker to explain legal terms in a contract so that you understand exactly what you are signing.