What is a mortgage?
The word “mortgage” comes from a French law term, meaning “death pledge.” Although it sounds morbid, it simply means that the pledge will end (die) once it is fulfilled or the property is given up through foreclosure. A mortgage is lent so that a purchaser of real property is able to raise enough money. Once all parties agree to the terms, the loan is secured to the estate. If the borrower then defaults on the loan, legally, the property belongs to the lender through a process of foreclosure.
Usually, mortgage lenders are financial institutions, such as a bank or credit union. Stipulations of loans can vary considerably depending on the lender’s preferences. Details of the mortgage loan, including the size of the loan, maturity date of the loan, interest rate and the intended payoff process are all very important factors to consider when agreeing to a realty mortgage.
Important mortgage terminology
• Property – the actual home being purchased
• Mortgage – the lender’s security interest in the purchased property
• Borrower – the person who needs the loan to purchase the property
• Lender – the person or institution giving the loan
• Principal – the original loan amount
• Interest – the amount charged for borrowing the lender’s money
• Foreclosure – the lender’s legal right to seize the property if the loan is not paid back according to the terms
• Completion – the completion of the mortgage deed and actually the start of the mortgage
• Redemption – the final payment towards the outstanding loan amount
Types of mortgages
The two most common types of mortgage loans are fixed rate mortgages and adjustable rate mortgages.
• Fixed rate mortgage – in this type of loan, the interest rate remains fixed throughout the life of the loan. With an annuity repayment schedule, the payments are set at a fixed rate throughout the loan. However, with a linear payback, the payments will gradually decrease over the lifetime of the loan.
• Adjustable rate mortgage – with this type of loan, the interest rate is usually fixed for a specific period of time. After, it will adjust up and down based on the market at the time. Adjustable rates tend to put more risk on the borrower rather than the lender.
The loan amount and interest rate are generally determined by the credit risk the lender decides the borrower has. A lender will usually look at a borrower’s credit score, debt-to-income amount, down payment available and assets, before making a loan offer. Please visit at panorama amk.