Mortgage Calculator -Understanding Mortgage,Interest Rates, Amortization Period, Blended Monthly Payments ........

Most people who buy a home or some other real estate take a Mortgage.

Not only they take a Mortgage , the Mortgage is most likely the heaviest personal borrowing  of their life.  The property against which they borrow is  their biggest single asset, with most commitment and for the longest  time. In other words, it is the most important financial  event (after marriage) in one’s personal and financial  affairs.

Thus it is very important that one understands Mortgage and its legal terms and implications very well. 

Mortgage , simply speaking is a personal loan that is secured by an asset –in this case the security is a house or some other real estate.  The person who borrows money is called a mortgagor and the person who lends money is called a Mortgagee.

The document which spells out the loan, its interest rate,  other terms and conditions of the mortgage is called the mortgage document or the Mortgage Deed.

Mortgage  loan bears some interest and is paid back periodically.  How the interest is calculated could vary, it could be a simple interest or the compounded interest.  The compounding period could vary. 

Mortgage Calculator -Understanding Mortgage, its terms such as Interest Rates, Amortization Period, Blended Monthly Payments & More........

Compounding means that interest is earned on the interest. The same  interest rate is used to calculate the interest on the principal and then on the interest earned.  Compounding could be monthly, semiannually or annually.  A Mortgage that is compounded over a shorter period is more expensive than the one compounded over a longer period; thus the monthly  payments of a Mortgage that is compounded monthly are higher than the monthly payments of  a Mortgage that is compounded semi-annually or annually. 

In Canada, most Mortgages are compounded semi-annually while in  USA, these  are compounded monthly.  So for the same Mortgage amount and the same Amortization period, monthly /periodic payments of a Mortgage in Canada are lower than the Mortgage payments in USA.

Most mortgage payments are paid back in periodic blended payments.  Blended monthly payments are equal monthly payments comprising  of some  principal and rest is interest but the ratio of principal and the interest varies every  month.  If such payments are made  over the Amortization period the Mortgage, the Mortgage loan gets paid in full.  If it takes 25 years to pay off a Mortgage, then the Mortgage is said to have 25 year Amortization period.

In the beginning, blended Mortgage payments comprise mostly of interest and close to the maturity of the Mortgage, there is very little interest in the monthly payment and most of the payment is the principal. If Amortization period is increased, the monthly payment goes down , and if the Amortization period is decreased, the monthly payment goes up.  The formulas and the calculations to calculate the blended monthly payments and figure out other factors that comprise the Mortgage are complex, however, financial and Mortgage calculators can make this job much easier.

Mortgage Calculator -Understanding Mortgage, its terms such as Interest Rates, Amortization Period, Blended Monthly Payments & More........

A Mortgage loan that is registered First against the title  of a property, is called a  First Mortgage.  If another loan is taken after the First Mortgage and then registered against the title, it is called a Second Mortgage.  The priority of claim against the property that is the First or the Second Mortgage has nothing  to do with the absolute loan amount.  A First Mortgage can be for a smaller amount and the Second Mortgage a much larger amount.  The amount of loan does not give priority to th eclaim, it is the order in which the Mortgage loan is registered against the property that establishes the priority of claim of the Mortgagee.

The Mortgage document gives certain rights to the Mortgagee and guarantees the loan amount and the interest.  In case of a serious default, there are provisions in the Mortgage document to seize and sell the property.  Any proceeds from the sale of the property will go First to satisfy the claims of the First Mortgagee and then whatever is left will go to the Second Mortgagee.  Because the Second Mortgagee is at a higher risk, the Second Mortgage loan normally carries a higher interest rate than the First Mortgage.
 

Mortgage Calculator -Understanding Mortgage, its terms such as Interest Rates, Amortization Period, Blended Monthly Payments & More........

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