The mortgagemarket is the market where lenders and borrowers meet to agree on the mortgage loan, where lender finances the borrower in purchasing of thehouse at the pre-determined terms and conditions and on agreed schedule of payments. However, the types of mortgages differ in nature and rules and regulations as per the borrower’s needs.Although, the well-knownthree mortgage plans are; mortgage repayments; interest only; and endowment mortgages.
Mortgage repayments plan borrower topayback the little amount of capital and interest over the life of themortgage. Meanwhile, the second is interest only, in which the customer is likely to pay the interest only, but, how he pays the capital is his own business.The third type of mortgage is the endowment mortgage in which borrower purchases the endowment policy which is life insurance that assures to pay the specific amount at the maturity or death of thesubject.Moreover, the amount is given to the lender at the end of the endowment mortgage maturity or the death of the client. (BBC News, 2007)
The mortgage rate is different from the interest rate because the difference between the mortgage rate and interest rate is the spread, which is the revenue of the bank.On the other hand, the bank’s core activity is to attract the funds, and lend them to the borrowers. Meanwhile, the difference that it pays to depositors, and gets from the borrowers is the bank’s profit. Similarly, the mortgage rate is different from the interest rate being offeredby the Bank of England called London inter-bank offer rate.
Furthermore, the there are various variable rates; fixed rate; and discounted rate.Variable rates keep on changingon the monetary policy issued by the bank whereas fixed rate mortgage plan is that in which the borrower has to pay the fixed mortgage rate, but it is fixed for 2 to 5 years. Moreover, it is consideredto be revised by the bank, and client is supposed to pay standard variable rate. Meanwhile, the borrower gets thebenefit when the rates increase, and it is also adisadvantage when rates decline. Lastly, the discounted rateof the borrower is offered the discounted rate over the defined terms. (BBC News, 2007)
The economic growth is connected with the mortgage market or real estate market due to which itis subjectedto be the domestic consumption in the market. Domestic consumption increases in the country when investors have confidence in the real estate market. Secondly, the declined interest rate also significantlytriggers the domestic consumption, where the investors turn their focus from another market to the real estate market. (Becker, et al., 2012)
Meanwhile, it is important to understand, why the borrowers in the market would get a mortgage plan on the higher rates. However, to answer this, the customers’ perspective is vital to understand. Apart from that,the exploration of the relationship between the mortgage market and economy is also the key to identify and analyze. On the other hand, the author(Coogan, 1998) argues that there are negative implications of the higher mortgage rate over the economy in the UK, whichled to the mortgage to the crisis in the 90s in the United Kingdom……………….
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