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What are the primary characteristics of residential mortgage loans?

Question:

What are the primary characteristics of residential mortgage loans?

Residential Mortgage Loans:

A residential mortgage loan is a type of loan that is issued primarily for a household, family, or personal use, mostly one to four members. It is secured by a deed of trust or mortgage or any other agreed-upon security interest on a dwelling or residential real estate where it would be constructed and would be used by the individual borrowing the loan. The residential or real property purchased should be used for personal residence or dwelling.

Answer and Explanation:

  • It is secured by a lien on the property purchased whereby the value of the property is made up through combining a cash deposit with the mortgage loan, which the person borrowing needs to repay in monthly installments within an agreed-upon period plus the interest.
  • Under many circumstances, the interest that the lender gains from the residential mortgage are tax-deductible.
  • Residential mortgage loans can only be issued to people purchasing a house for their own residential purposes.
  • Mortgages that have a low loan to value ratio due to high deposit payments would lead to the payment of low-interest rates due to reduced risks on the lender since they would be issuing less money.
  • It has two prepayment methods; the interest-only mortgages and the repayment method whereby in the repayment method, the monthly payments combine a percentage of the mortgage's value and the interest, whereas in the interest-only mortgage, the monthly payments have only the interest, and the remaining capital is repaid at the end of the loan term.

Learn more about this topic:

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Buying a House: Mortgage Types & Loan Length

from Finance 102: Personal Finance

Chapter 7 / Lesson 4
8.3K

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