Before we talk about guaranteed mortgages, let us first discuss what a mortgage essentially refers to. A mortgage is a loan that allows a person to purchase a piece of real estate property. It is a type of home loan that allows a person to buy a residential property whereas they agree to pay the lender by making periodic payments toward his premium. Here, the property in question acts as collateral or security against which the loan is granted. Mortgages allow real estate buyers to purchase properties without being liable to pay the entire amount at once. In this context, buyers typically obtain mortgages from financial institutions which in turn charge interest on the total amount disbursed.
Approaching property purchase with the help of a mortgage or home loan protects buyers from paying a lump-sum amount. It allows them to pay smaller amounts over an extended period of time while enjoying the ownership rights to the property in question.
Now, a guaranteed mortgage is virtually an insured mortgage. It is a home loan granted by financial institutions or other lenders to borrowers on the condition that a reliable third party agrees to accept liability in case the borrower fails to pay his premiums.
Guaranteed mortgages play a crucial role in the real estate marketplace. Typically, loan grantors require the borrowers to make an upfront payment of about 15-20% of the total value of the property. This is considered a down payment for their periodic installments. However, it becomes difficult for most home buyers to arrange such an amount and pay it at once. This is where guaranteed mortgages come to the rescue.
In a guaranteed mortgage, a third party enters into the loan arrangement as an insurer who agrees to assume responsibility in the event that the original borrower dishonors his liability. More often than not, guaranteed mortgages are backed by government organizations that proceed by purchasing the debt and accepting the obligation to pay back the loan to the lending institution.
According to observations made by the National Association of Realtors, the availability of guaranteed mortgages has substantially tipped the scales in their favor. With guaranteed mortgages, home buyers are not subjected to large down payments and this has resulted in increased real estate sales. It should be noted that there exist certain requirements put forth by the third-party intuitions that help them determine whether to endorse a particular buyer or not.
