As you know, one of the main components of the American dream is nothing more than your own home. It’s no secret that the United States of America is on the list of the most profitable countries in the field of lending, especially mortgage loans. Low interest rates on loans, loyalty to borrowers and a high standard of living in the country allow Americans to take out loans without thinking about the multi-year burden of repayment. First of all, let’s understand the concepts of mortgages, mortgages and loans secured by real estate. Wanting to buy a house, and not having the financial ability to do so, you go to the bank for a targeted loan – to buy real estate. In this case, the house itself acts as a mortgage, as a pledge to the bank for a loan provided to you for its purchase, or for the purchase of another home as a pledge of your real estate. When registering such a transaction, the mortgage object will be officially entered in the register of rights to real estate, and information on the status of real estate “on collateral” will become public. Until you fully repay the loan, the property will be documented by the mortgagee – the bank, and formally to you. A mortgage loan is a type of loan in which funds are provided for the purchase of real estate. A bank transaction in providing you with a consumer loan, for example, to buy a car, as collateral for your real estate (which you own), will be considered a “loan secured by real estate”. The average market value of a five-room home varies from state to state from $ 60,000 to $ 150,000. Despite the fairly affordable housing prices, many Americans, not wanting to lay out the amount of real estate value in a single payment, take a mortgage for a period of 30 years. This makes it possible to monthly give a minimum part of their income to repay the loan, and not be in austerity. Of course, in the aggregate, the amount paid on interest for such a long period of time will significantly exceed the interest on a loan for a period of 10 years. A mortgage for a period of 30 years at a 5 percent rate will cost the borrower twice the value of the property. This is due to the fact that the client, making a small amount of the loan on a monthly basis, pays almost one interest, without reducing the size of the loan body. The borrower has the right to make a monthly payment several times higher than specified in the agreement, thereby reducing the loan repayment period, if this does not contradict the terms of the agreement.
What is mortgage?
In the US, real estate loans are called “mortgage”, which literally translates as a mortgage. At the same time, mortgage can be both with a fixed interest rate – Fixed-Rate Mortgage (FRM) and with a floating – Adjustable-Rate Mortgage (ARM).
What is the US interest rate for real estate loans?
Americans are always faced with the choice of which option “mortage” will be more profitable for them. The floating interest rate is always lower than the fixed one (by 1-2%), but it is significantly influenced by the conditions associated with the state of the US economy at the time the bank revised the rate. Taking such a mortgage, the borrower is a kind of “playing roulette” with an interest rate, and is unable to distribute his expenses in the future. Depending on the terms of such a loan, the floating interest rate may not change in the first 3, 5, 7 years (3ARM, 5ARM, 7ARM) from the date of the mortgage, after which it can be raised to the boundary values (CAP), for example, from the initial 3 % up to 7%, of which 4% will be CAP. At the end of the fixed period, the bank will annually revise the rate until the borrower fully repays the loan, and in extremely rare cases, downward. This type of mortgage is preferred by those who plan to repay the loan in a short period of time. Interest rates on such a loan on average vary from 3.1% to 4.5%. To date, the rate on five-year mortgages (ARM) averages 2.85%.The option of a mortgage with a fixed interest rate, due to the absence of risks, is increasingly attracting Americans. It is used by 75% of borrowers. Often, potential buyers of real estate are waiting for the moment of economic stability in the country, when the FRM rate is not too high and the interest rate is lower for the entire loan period.
Of the main features of mortgages in the United States, the following can be distinguished:
Low interest rate. Of all kinds of loans, mortgages have the lowest interest rate. This is explained by the fact that mortgages are often issued for a long term – 30 years.
High competition. Due to the fact that mortgages are very popular in the United States, each of the banks is trying to retain its client. Therefore, such lending is available to many segments of the population. In extremely rare cases, borrowers are rejected. Accounting for the client’s income. When considering an application for a mortgage, American banks take into account not only the client’s income from wages, but any of his personal savings, including retirement benefits, as well as dividends and income from rent.
An initial fee. The size of the initial payment is 10-50%, but some of the bank’s programs do not have such obligations at all. People who have reached the age of 25, but not older than 75, can take out real estate loans in the United States.