Mortgage Loans and Credit Score


Mortgage loans are loans taken to finance the purchase of a home or property. This mortgage is a legal instrument which is the basis for these loans. The word mortgage is used alone often but it implies the mortgage loan.



mortgage loan credit scoreMortgages are available through different financial institutions, banks, and credit unions. There are various factors which affect mortgage loans and how they are paid off. These include the type of loan, the amount of the loan, maturity date of the loan, methods of repaying the loan and many other related features specific to the loan terms.   


When a lender is assessing a consumer for a mortgage loan application, aside from the property in question the single greatest factor affecting loan terms and approval is the consumer’s credit score.  A poor credit score can mean higher interest rates, a larger down payment required or overall denied approval, placing the loan out of reach for the applicant.  Before even attempting to apply for a mortgage loan, it is crucial to check your credit report, fix any errors, and get your credit score as high as possible


Facts about Mortgage Loans


A mortgage is defined as the transfer of an interest in property to a lender as security for a debt, typically borrowed money.  Usually a mortgage loan occurs when the owner of the land or property pledges the collateral for a loan. The mortgage is basically an encumbrance on property. The word has also been used in the generic sense for any loan which has been secured against property. Mortgages have interest rates which are set for a period of time. This can be about 30 years or more these days.


All kinds of properties can be mortgaged and the interest rates are determined by the lender based on the borrower and the property in question.  It is stated in every mortgage contract that the property being mortgaged is the insurance policy on the deal.  Meaning should the borrowing party fail to make payment, the property can and will be seized.  While this is an unfortunate end result for some borrowers, on the whole all consumers benefit from this type of agreement, without this insurance policy, most banks would never loan the money to begin with.


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Credit Scores and Mortgages


Credit scores are the basis for providing mortgage loans, they are used to determine your “loanability”. The credit scores help the lenders to analyze the risks posed to them, through borrowers, if they grant a loan to them. Credit scores are computed on the basis of the payment history of the debtors and other features on their credit reports. A good credit score means less risk for the lenders as the debtor has a payment history where loans and debts have been repaid on time. But with poor credit scores the lenders are at risk because the debtor or the borrower has a poor repayment history. Hence poor credit scores result in higher interest mortgage loans while good credit scores result in lower interest rates.  There is nothing personal in making mortgage loans; banks simply want to loan to the borrower who looks the least risky.  The tool to figure this risk out is always based on credit history.


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It is of paramount interest for the borrower to take note of the fact that credit scores directly affect mortgage loans.  Most mortgages are going to be paid for several years, usually several decades.  Taking the time before you start looking for mortgage applications to repair your bad credit now can save you tens of thousands of dollars in the long run.


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How to Get Lower Interest Mortgage Rates


One of the best ways of getting lower interest mortgage rates is to improve your credit score. Usually credit scores are the direct result of poor payment history and other financial mistakes made in the past. Attempts should first be made to repay the maximum amount of outstanding debts possible before applying for the mortgage loan. If there is any erroneous information, get it disputed and removed immediately.  Finally any negative entries that are on your report that have “expired” meaning been on file for more than 7 years, need to go.  Identify them, make the credit bureau issuing the report aware of the aged item, and request it be removed immediately.