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Understanding Mortgage: A Few Basics; Interest & Interest Only Loans in New York City

Mortgage loans are legal contracts undertaken by a debtor and a creditor for the financing of the purchase of a property by the former, or  for some other reason for raising funds. It is an agreement that bestows conditional ownership upon the creditor of said property, or another of same or similar value which is called the security or collateral. Where, upon the failure of the debtor to pay the debt or follow the terms of the contract, the creditor has the right to foreclose or repossess the collateral property – that is to take possession of it and to sell it in order to pay off the loan that the debtor incurred.

There are different ways to pay the mortgage; these are often available in financial institutions like banks or real estate investors. Two of the most commonly used are: capital and interest loans, and interest-only loans. The former involves a previously agreed-upon amortization schedule, wherein upon regular intervals (usually at the end of every month) the debtor pays a portion of the principal loan and the interest that the creditor determines in the contract. The latter is a main alternative wherein a separate investment plan is set up, and the regular deposits by the debtor are used to accumulate the investment, and when the investment matures the lump sum value of it is used to pay off the loan. This is favored for its tax advantages over the former method.

Why Get a Mortgage Loan?

Mortgages are often used in real estate where the general financial state of the buyers does not allow for them to purchase properties outright because they have inadequate liquid assets or cash. In cities with a very high price per square foot like New York City, Los Angeles and Washington, D.C., almost all real estate transactions require that they be covered by a mortgage.

Since mortgages are often long-term commitments, it is important for a prospective buyer to carefully choose the company or institution that will provide the capital; oftentimes a disadvantageous contract that was not thoroughly and specifically designed for the needs, paying capability and financial state of the debtor will end up in the foreclosure of the collateral property. A good company will take sufficient time to assess the client’s information and discuss the contract properly, including identification and analysis of foreseeable problems, as well as ways to avoid them.

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