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What is a mortgage?
A mortgage is a loan that is used to purchase a piece of real estate or property. The property serves as collateral for the loan, and the borrower makes payments to the lender until the loan is fully paid off. Mortgages typically have a term of 15 or 30 years and the interest rate can be fixed or adjustable.
Why do mortgages have interest rates?
Mortgages have interest rates because they are a type of loan, and all loans involve borrowing money and repaying it with interest. The interest rate is the cost of borrowing the money, and it is expressed as a percentage of the loan amount. Lenders charge interest on mortgages to compensate them for the risk they take on by lending money, as well as to cover the administrative costs associated with the loan. The interest rate also helps the lender make a profit.
What’s the most common type of mortgage?
The most common type of mortgage is the fixed-rate mortgage. This type of mortgage has an interest rate that remains the same throughout the life of the loan, which makes it easier for borrowers to budget and plan for their monthly mortgage payments. The repayment term for this type of mortgage is typically 30 years. This type of mortgage is known for its predictability and stability, making it the most popular choice among home buyers.
What is an ARM mortgage?
An ARM (Adjustable Rate Mortgage) is a type of mortgage where the interest rate on the loan changes, or adjusts, at specific intervals, typically once a year. The interest rate is usually based on a benchmark rate, such as the prime rate or LIBOR, plus a margin. Because the interest rate can change, the monthly payments on an ARM can also change. ARM loans usually offer a lower initial interest rate compared to fixed rate mortgages, making them more attractive for home buyers looking for lower monthly payments. However, since the interest rate can change over time, it can also increase, which could make the payments on an ARM less affordable in the long term. It is important to consider the potential risks and rewards of an ARM when deciding on the type of mortgage that is right for you.
What happens if someone doesn’t pay their mortgage?
If someone does not pay their mortgage, the lender may initiate a process called foreclosure. Foreclosure is a legal process in which the lender takes ownership of the property that was used as collateral for the loan in order to recover the unpaid debt.
The process of foreclosure can vary depending on state laws and the type of loan, but generally, the lender will first send a notice of default to the borrower, which gives them a certain amount of time to cure the default (bring the loan current) before the foreclosure process begins.
If the borrower does not bring the loan current, the lender will then schedule a public auction to sell the property. If the property sells for less than the outstanding mortgage balance, the borrower may be held responsible for the deficiency balance.
Foreclosure can have a serious impact on the borrower’s credit score and their ability to obtain credit in the future. It can also be emotionally and financially stressful for the borrower, as well as for their family.
It’s important to note that there are alternatives to foreclosure, such as loan modification, short sale, or deed in lieu of foreclosure, which can be considered in some cases.
Are you behind on payments with a house in Denver and you would like to receive an offer to sell? Let us know! Contact us by filling out the form here or give us a call at 303-997-2045!
Disclaimer: This is for educational purposes and is not legal or financial advice for getting a mortgage or what to do in your current situation with a mortgage.
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