A mortgage loan refers to a loan to purchase or refinance a home, where the borrower provides some form of collateral such as property, shares, and mutual funds to secure its repayment in case the borrower fails to meet their obligations.
This is in contrast with unsecured loans like personal loans which are not secured by any collateral or assets. Mortgage loans offer some key benefits that make them a good option.
Mortgage Loan Benefits
Some of the main benefits of mortgage loans from reputable banks and lenders include:
1. Lower Interest Rate
Usually, mortgage loans have a lower interest rate compared to normal unsecured loans. A borrower can save a lot of money by opting for a mortgage loan over another type of loan. This is because mortgage loans are secured by properties or assets, therefore the lending bank provides a lower interest rate to the borrower.
This can be a major advantage for someone who is buying a property at a young age, as the person could have plenty of time to pay off their mortgage loan and benefit from the low-interest rates.
2. Flexible Repayment
A borrower can have a flexible repayment structure for their mortgage loan. The borrower could choose to pay a fixed amount or installment every month, or they could also opt for the balance of the mortgage loan to be paid off when the property is sold.
If the borrower wishes to pay off the mortgage loan early, they can do so by paying off an extra sum each month. For example, bank mortgage loans in Singapore will usually allow borrowers to pay off as much as 3 years at a time.
3. Protect Home Equity
Many homeowners opt to take out a mortgage loan when they are in their prime working years and have decent savings. This is because they foresee their home value increasing over the years and therefore wish to protect their investment by taking out a mortgage loan at this time.
A homeowner can borrow up to 80% of the value of their property. However, it is important to note that if the value of the property decreases, the borrower might have to pay back more money than what they had initially borrowed.
4. Budgeting Ease
A mortgage loan allows you to split your expenditure into different sub-headings. This will allow you to keep track of how much you are spending each month, as well as whenever there is any excess income.
A bank mortgage loan can be set for a period as long as 30 years, allowing borrowers to create a sustainable budget. This can also give borrowers time to review their budget and see if any excesses could be used for other purposes.
5. Can Be Used as Collateral
Mortgage loans can be used as collateral. This is because the borrower puts up some form of the asset as collateral such as property, shares, or mutual funds if they do not meet their obligation to repay the loan. This could be useful for someone whose business is at risk.
The borrower can use their assets as collateral for a bank mortgage loan to fund their business operations. This is because the lender would have some assurance that they will be repaid if the borrower defaults on their obligation to repay the loan.
Mortgage loans are not just the conventional way to secure your property. These loans can also be used to purchase properties when you are young, build a business empire, and also protect your home equity. However, one must evaluate all their options before taking up a mortgage loan, because there could be other alternatives that could suit your needs better.