Who are mortgages for?

Posted by

Mortgages are simply a type of loan that are specifically used to either buy or refinance a home. Mortgages allow individuals to purchase a home when they do not yet have all of the cash available to purchase the property upfront. Due to the large investment that buying a home is, the majority of individuals who purchase a home use a mortgage loan.

Mortgage Loan Process

In order to qualify for a mortgage loan, an individual must be able to satisfy various eligibility requirements. These eligibility requirements can be based on income, debt-to-income ratio, and credit score. If an individual meets these eligibility requirements, they can then take out a mortgage loan and use it to purchase a home.

When an individual gets a mortgage loan, only 80-90% of the cost of the house is issued. This is one area where mortgages differ from other types of loans. Therefore, the borrower must be able to provide the funds for their deposit on the property.

Who uses mortgages?

Mortgages allow individuals to purchase a home, despite not currently having all of the funds needed to buy the home outright. Therefore, mortgages give a wider range of people the opportunity to use their own funds – deposit – in combination with borrowed funds – mortgage loan – to purchase their home with the promise to pay back all borrowed funds in the future. Simply, mortgage loans allow individuals to achieve home ownership.

However, investors will also sometimes take out mortgage loans when purchasing properties despite having the available cash funds to purchase the property outright. By using a mortgage loan to purchase the property, the investor is able to use those cash funds for other investments. Once the investor has purchased the property with the help of a mortgage loan, they can rent out the space to tenants with the intent to eventually generate a return on the investment. These investors are also known as buy-to-let borrowers. 

Today, mortgage loans benefit and are used by many different people. They are most commonly used by the average person wanting to purchase their own home. Therefore, mortgages allow the average person to gain home ownership. However, they can also be used by investors looking to purchase an investment property. This allows investors to gain capital from their initial investment in the future, without having to use their current reserve of cash funds. In this case, a mortgage loan allows the investor to use those funds for other investments.