Residential Mortgage Financing

Residential Mortgage Financing help in the procurement of an real estate property, in which the said real estate property is considered as the security pledged for the repayment of the mortgage loan. Residential Mortgage Financing stretch generally over a substantial period of time.

Ingredients of Residential Mortgage Financing:

Residential Mortgage Financing revolves around certain ingredients and the most significant ingredient, is the house that has initiated the need for home mortgage financing. The choice of the proper institution to avail the loan is the second important constituent. The next constituent are the terms and conditions set up for the mortgage procedure. Terms and conditions involve the principal loan amount, required for the purchase of the house and the rate of interest is calculated on the principle amount.

Residential Mortgage Financing Systems:

Residential Mortgage Financing is carried on with the help of two systems, that include:

• Fixed Rate Mortgage
• Adjustable Rate mortgage

Fixed rate mortgage provide the assurance of a fixed rate of interest maintained throughout the loan period. Fixed rate mortgage also guarantees an exact loan repayment amount at particular intervals. While the variable or adjustable rate mortgage maintains a specific interest rate maintained for a particular time span. The interest rate after the completion of that particular time span is altered with the altered market indexes.

Kinds of Residential Mortgage Financing:

Residential mortgage financing is mainly classified into kinds and known as :

• Foreclosure Lending
• Non-Recourse Lending

Foreclosure Lending is the commonly accepted form of residential mortgage financing, in foreclosure lending on account of the non-payment of the amount of loan, the mortgage lender forecloses the house that was kept as security against the loan. The burden of payment of the arrear dues is the concern of the borrower of the mortgage loan. The non-recourse lending is the other form of residential mortgage financing, and in non-recourse lending in case the funds collected through the sale of the collateral, is less than the actual amount of the mortgage loan, then the mortgage lender is may not be approachable any more to compensate for the loss.

Method of Repayment of Residential Mortgage Financing:

The procedure of repayment of residential mortgage loans has been simplified by providing the borrower with a number of choices for repayment. The most common among the repayment plans is the capital and interest repayment procedure which lies in contrast to the special repayment plan i.e. no capital or interest repayment procedure. Another variation to the said repayment plans is the interest only repayment plan, that does not require the repayment of the capital amount. Provisions have been made where the payment of the total interest amount is required and but the partial payment of capital amount can be done.

Variants of Residential Mortgage Financing:

Home Equity Loans: These loans are preferable as the regular defrayals made to pay off the mortgage loans can be utilized for tax deductions, moreover , the rate of interest is comparatively low. The home equity loans are very secure, as the fear of bad debt is minimal, because in case the borrower fails to make the regular payments towards the principal amount, the collateral can be seized and sold to make up the arrear dues.

Home Improvement Loan: They are very unique in nature as the borrower or the mortgagor here uses his property as the collateral to up grade his house by carrying on repair and renovation works, and to extend the number of rooms or to incorporate other facilities inside the house.

Residential Mortgage Financing Institutions in India:

Residential Mortgage Financing is currently carried on by both the public sector as well as the private sector, the public sector institutions include the Indian banks like the State Bank of India, the Life Insurance Corporation's Housing Finance Limited. The significant private sector Residential Mortgage Financing include popular banks like the Industrial Credit and Investment Corporation of India Bank, Housing Development Finance Corporation, Citibank, Standard Chartered Bank, HSBC and so on.

Last Updated on 5/26/2011