Understanding the concept behind Real Estate Loans

However, real estate loan is not free money and anyone who buys real estate

or plans to buy real estate using real estate loan must understand the

concept of real estate loan very clearly.

Real estate loan (also known as mortgage) is the money that you borrow from

someone (a financial institution i.e. a mortgage lender) for the purpose of

buying a property. The real estate loan generally covers a part of your

purchase price and the remaining portion has to be paid by you upfront i.e.

as down payment.

The amount (i.e. the percentage of total purchase price) that you have to pay

as down payment is dependent on a number of factors and you can generally

reduce it to even 5% by going for mortgage insurance.

Whatever you borrow from the mortgage lender as real estate loan needs to be

paid back to the mortgage lender over a period of time (and, of course, you

will also need to pay appropriate interest on that real estate loan). The

tenure of your real estate loan and the prevailing market rate will determine

the amount of interest you pay for your real estate loan.

Generally, you are required to pay back the real estate loan in the form of

monthly instalments which are composed of both interest and principal

portions of your real estate loan. Also, there are various types of real

estate loans e.g. fixed interest rate loans and adjustable interest rate

loans. So depending on what type of real estate loan you have gone for, your

monthly payments might either remain constant (fixed rate) for the full

tenure of the loan or keep getting adjusted periodically (adjustable rate) on

the basis of a financial index.

Besides that, some other costs are also associated with real estate loans e.g.

 there are closing costs, inspection costs, attorney fee etc. Also, in case

the property needs some repairs, there will be costs associated with that too.

 Again, there is stamp duty and other taxes that you need to pay.

  So, really, you need to understand the concept of real estate loans and the

related costs clearly before you actually go for the real estate loan. And

understanding these concepts is really not that tough.