Looking for a house mortgage? Facing a financial crisis and the only collateral property you own is your house? In both scenarios, you need to mortgage the house. However, you are like many people in this situation perplexed with the idea of taking out a mortgage on the property and the uncertainty around doing this. When you search the market for information on this, loan sharks and real estate giants are there to entice you with promotional deals and cheap interest rates. How do you make the right decision and who can legitimately provide you with the mortgage options?
There are several mortgage types available in the market whose nature is like one another, however, there are various places that offer these mortgages. Each option has the pros and cons and we will discuss some of these in detail below:
1. Banks: Choosing a bank to get the mortgage is an obvious choice for many because nothing can be a more reliable option than a banking institution when you are dealing with your finances. Banks are the most common source for lending and financing. However, the banks in Australia are regulated by the Australian Prudential Regulation Authority (APRA) and have set some standards to allow the credit facilities. The banks as a financial institution take deposits from their regular customers in return for a suitable interest rate for the period of deposit.
Similarly, they lend the fund to clients needing funds in return of higher interest rates than they pay to their customers for the deposits. However, while advancing the funds to the clients, they take collateral from them for the period of the loan and until the principal amount, as well as interest, is recovered in full. Hence, mortgaging a house with the bank is also a form of loan where the collateral is the house that you keep with the bank. In case, you are unable to repay the loan, the bank will sell your property to recover the loan. The authority of the bank to deal with the mortgaged property depends upon the nature of the mortgage you have undertaken.
2. Loans from Mortgage Brokers: The mortgage broker is the agent who act as a facilitator between you and the potential lender. When you approach a mortgage broker for the purpose of getting a loan in return of the collateral, they analyse the value of the property being offered and offer you various proposals that are available with institutions offering to advance the money. The broker explores several market options and proposes you the best available rate by negotiating with numerous possible lenders. Generally, the brokers do not charge any fee in return for their service, they are compensated by the lenders with either commission or a fixed fee. The option of mortgaging a home via the use of a broker is secure and provide various options for you and could well be cheaper interest rates and better terms than compared to you going to your bank directly.
3. Cooperative Credit Unions: The members of a cooperative organisation, jointly own and manage this financial institution for the interest and benefit of its members or shareholders. They offer similar facilitiesas provided by the banking institution, but the service is limited to its shareholders or members. The union collects the saving and deposits from shareholders in return for some attractive interest rates and the same funds accumulated is offered as a loan to the other shareholders meeting the lending criteria set. However, these organisations do operate with a non-profit motive and generally charge lesser fees and interest rates as compared to the banking institutions.
4. Mortgage Managers: Unlike the brokers, there is no third party involved in this scheme of lending. The lenders directly deal with the borrowers for the reason of mortgaging and advancing the loan. Contrary to the other schemes of financing, the mortgage managers do not collect deposits from the customers for advancing the same fund to the debtors. Rather, their funds are generated by the means of securitisation, which they further invest in the market in the form of saleable securities. The lender of fund become the ultimate owner of the mortgaged property for the term of the loan. However, the role of mortgage manager is to arrange the funds and manage the loan throughout the period.
The entire process of dealing with any finances is extremely intimidating for those not familiar with handling such matters. You would want the most attractive interest rates as possible, however, the security of the collateral and hassle-free dealing is also a consideration. Therefore, the wiser decision would be to analyse all the available market options, the certainty and reliability of the service and flexibility. It is advisable to keep the intermediaries in between you and the lending institution because of the the potential for higher interest rates compared to dealing directly with the institution and multiple commission tiers you may be indirectly be paying for with the increase in the number of parties involved.