A home loan, or mortgage, is a secured loan that borrowers obtain in order to purchase a home. Because a home is the largest purchase many individuals will ever make, most borrowers utilize home loans to assist with their home purchase.
Borrowers must apply for a home loan with a lender such as a bank or credit union. Lenders require borrowers to provide proof of income to demonstrate that their income level allows them to comfortably afford the loan. Borrowers must also allow the lender to evaluate their credit history. This lets the lender determine how likely the individual is to make his mortgage payments in a timely manner.
Mortgage loans carry an interest rate. This interest rate may be fixed and unchanging or variable and subject to change, depending on the type of loan program the borrower selects. The lower the interest rate, the less the individual pays over time for the privilege of the home loan.
Should a borrower stop making payments on his home loan, the lender may claim the property through a process known as foreclosure. Because mortgage loans are secured loans, the property itself is the lender’s collateral. Lenders may legally seize collateral in the event a borrower ceases to meet the payment obligations she agreed to when she originally accepted the home loan.
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