Low Interest Mortgage: Good for Early Mortgage Settlement

2007-03-08 10:33:40

( Financial )



THE MORTGAGE PLAN

Mortgage is the collateral you put up in order to qualify for a secured loan from a bank or other lending institution. Usually the mortgage is done to enable you to acquire property without having to pay the entire amount in full.

Because realtors and sellers of properties require payment in full, what you will do is apply for a mortgage loan. The mortgage will be the property that you are buying. What will happen is that your creditor will give you the money to pay for the property, but your creditor will hold the title until you can pay the entire mortgage loan and mortgage interest. In essence, what happens is that your lender will buy the property in cash, and you in turn, will buy the property from them on an installment or staggered basis.

MORTGAGE INTEREST

Banks and other lending organizations earn through this arrangement by imposing a mortgage interest that you have to pay alongside the principal loan value. Of course you will naturally be attracted to a low interest mortgage plan because you will automatically assume that you will save money if you take a low interest mortgage.

However, that is not always the case. Most low interest mortgage have a specific period where the low interest rates will apply. After this, the interest rate gets adjusted on a regular basis to reflect current interest rate trends. The low interest mortgage will be fixed for some time, and will become variable after.

A low interest mortgage can work to your advantage if you plan to close or settle the entire loan within the low mortgage period. If you close your mortgage loan while still under the low interest plan, you can really get substantial savings than if you were to follow the mortgage timeline.

Of course this only works if you have cash to settle the mortgage early. Otherwise, be wary of a low interest mortgage because you might end up paying more after all.


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