Secured Loans and Mortgages: The Facts

If you are thinking of applying for a secured loan or mortgage, then you must first undertake some comprehensive research. Find out as much information as you can to avoid any problems in the future.  Nobody will allow you to secure a loan without meeting certain criteria and going through an application process.  As a borrower, you would like to decrease the risks associated with getting loans as much as possible to prevent serious debt problems. In order to make this happen, you must know the facts about secured loans and mortgages.

 What are Secured Loans and Mortgages?

This type of loan is where collateral (personal property of the borrower) is always involved. The collateral will become a property of the lender in case the borrower failed to pay the debt. The lender will then have the full rights on the collateral which he or she can use or sell to recoup the costs of the default payments and cover administrative costs. The lender will also charge interest rates on the borrowed money which is the primary method through which a lender will obtain a profit.

The word mortgage came from a French word that means death contract. Its called a “death contract” because it will be terminated or dissolved the moment the obligations of both sides are adequately met.

Difference between Secured and Unsecured Loans

The main difference between secured and unsecured loans is their interest rates. Securing a loan incurs fewer risks because of the collateral, a lender is able to provide lower interest rates. As this might be the case, there are still some factors to be considered such as your ability to pay, credit history, and the benefits the loan can potentially bring for the lender.

Types of Secured Loans

  • Repossession – you may be familiar with this term since most of the worlds economies are experiencing financial cuts and an economic downturn. The housing economy has seen a great depression which has resulted in widespread repossessed properties. Many people who have secured a loan in previous years are having problems meeting their repayments and are left with no other choice but to sell their property in order to pay the outstanding balance.
  • Non recourse loan – the lender’s sole claim on the loan agreement is the collateral itself. The lender cannot do anything if there is a remaining balance after the contract since the collateral will serve as the only compensation.

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