Its level is an essential aspect when applying for a mortgage as it often represents the main obstacle to get the loan. It is the amount of money you already have and able to use to pay for the property before you get the loan. Its amount depends on two factors: the home value (the price of the property) and the down payment. It is merely the amount you want to borrow from the bank. Besides, to be able to apply this calculator properly and to understand its computational background, it is crucial to get familiar with the following terms. Such arrangements are, for example, interest-only, reverse mortgage, or balloon payment mortgage.īefore you take a mortgage, you need to know how different factors and components affect your loan. Still, it is worth to know that a mortgage might have other repayment structure that involves different calculation procedures. Since we designed this mortgage calculator for estimations related to the amortized type of mortgage mentioned above, in the following, we focus mostly on this type of loan. From the perspective of the lender, a mortgage is a type of annuity, which is based on the time value of money formula. This kind of schedule generally corresponds to amortization loan in the US and Canada or repayment mortgage in the UK. The most typical layout for repaying a mortgage loan is to make equal payments that consist of an altering part of principal and interest over the agreed term. It means that if the debtor is unable to realize the periodic payments (installments) at the agreed due dates, the lender can take ownership of the property. The characteristic feature of each mortgage is setting the collateral on the real estate the debtor buys. In other words, we can say that a mortgage is a form of a personal loan that the bank provides for the house purchase. The essential part of a mortgage besides the loan amount (principal) is the interest, which is the cost of the loan for the debtor, and the remuneration for the bank. The bank holds this title until the debtor fully repay the whole loan.
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