Advantages of using Mortgage loans

Advantages of using Mortgage loans

The mortgage loan is a very specific type of loan. This particular type of loan is used to finance real property, such as house or a building, and the loan is secured against that property. It is common for both individuals and business owners to take mortgages. Individuals can take this loan for their house, for example. On the other hand, businesses can take mortgage to finance a factory or other commercial building. A financial institution, such as building society or a bank, is usually the financier for this type of loan.

The lending party is usually faced with minimal risk as the loan is secured against tangible property. On the other hand, the individual or business borrowing this money can lose property if the loan is not paid according to predetermined terms and conditions. There are various potential benefits of taking mortgages. These potential benefits and advantages are discussed in this article.

1: Makes owning a property affordable:

The biggest portion of general public belongs to middle class in most developed and under-developing countries. All these people want to own properties, especially houses. However, it can obviously be very difficult to save hundreds of thousands of dollars in order to purchase a house. Mortgage is widely considered to be the best alternative in this situation. Instead of spending hundreds of thousands of dollars at the time of purchase, you can divide the amount over a very long period of time. There is no definitive period but most mortgages are taken for around 20 to 25 years.
Same is the case with businesses. Most startups and even established companies don’t usually have enough cash or cash equivalent resources to buy expensive tangible properties. Therefore, mortgage is among the best options for businesses as well.

Cheaper way of borrowing:

Mortgage is not only among the most convenient options of financing properties but it is also one of the most cost effective options as well. The interest rate on mortgages is usually very low as compared with other long term loans. This is primarily because of the fact that the loan is secured against tangible property. The banks or other lending institution always has the option to sell off the asset to recover their money. Therefore, they charge lesser interest because of the lesser level of risk involved.

Easy availability:

It may be difficult for most individuals as well as companies and businesses to secure long term loans in the presence of credit track record and other necessary requirements. On the other hand, mortgage is easier to secure in most cases. One of the most important reasons is the same as discussed above. As the loan is secured, lenders do not have to worry about the security of their money and hence they give it easily. At the same time, there are various government and NGOs run schemes to facilitate first time buyers. ‘Help to Buy’ is one such scheme. Loan is usually very easy to get in these schemes and the rate of interest is also minimal.

The potential disadvantage:

We have already discussed some of the most important advantages of financing a property through mortgage arrangement. However, there is also a very crucial disadvantage to such a scheme. You will obviously end up paying thousands of extra dollars over the course of your life. In fact, you may end up paying more than the double amount of original price of your house. Hence, this factor should also be kept in mind when planning to use any such scheme. At the same time, you can end up losing your property in case you have failed to pay the periodic installments.