Advantages and Disadvantages of a Mortgage Loan

A mortgage loan is a very specific type of loan for the purchase of a property. The property may either be a house, a lot or both. Mortgage loan has been specifically created for acquisition and ensure that terms address the matters concerning on the purchase of a property such as valuation, property appreciation and property ownership. There are specific advantages and disadvantages of getting a mortgage loan and knowing what they are will assist in planning action.

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Advantages:

  • Liquidity – an individual or entity who wants to purchase property but is not liquid enough can still do so by getting a mortgage loan. This loan allows the buyer to be funded by the lender on the purchase of property. Despite an individual not having enough cash, mortgage loans grant the individual the chance to make a purchase. Payment by the individual buying the property can now be done by paying installments rather than one go.
  • Credit Score – paying a mortgage loan consistently and without defaults build a good credit standing, like with any other loan. The advantage of having a good credit score from a mortgage loan allows you to get lower interest rates as granted by the lender.
  • Interest Rates – the property purchased serves as a collateral to the loan which allows the lender to foreclose the property and recover the default payments. In this case, the loan itself can be granted a lower interest rate compared to other types of loan. The lien on the property gives the lender security which does not require them to recover the fees as soon as possible via charging high interest rates.

Disadvantages:

  • Related imageHigher Purchase Price – all loans require an interest to form part of the borrowed money for the lender to recover the value of money that may have been earned and protect from the inflation of the economy. Because of this, a higher price is being paid by the buyer upon paying the full loan amount where the principal is equivalent to the property value.
  • Charges – other fees are incorporated in the principal loan and interest rates. Because of the purchase of a property, there are other fees like legal fees and insurance fees which are charged to the buyer and incorporated in the amortization to be paid. These charges are not present in other type of loans.
Categories: Loans
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