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Mortgage A mortgage is a device that grants a creditor an interest in property of his debtor, protecting the creditor. In common law a mortgage was a conditional sale. For example, the mortgagor (debtor) sold realty (real property mortgage) or personal property (chattel mortgage), however if the debtor paid the debt by a certain date the sale was voided. The mortgagee (creditor) held legal title, the mortgagor held equitable title; both estates were salable. Today the majority of states in the United States view mortgages as liens on property, lien is the broadest term for any sort of charge or encumbrance against an item of property that secures the payment of a debt or performance of some other obligation. Liens can be consensual or non-consensual. Consensual liens are imposed by a contract between the creditor and the debtor. These liens include:
The practical result under both systems is the same. If the mortgagor fails to pay the debt, the creditor seeks a court-ordered sale of the property (foreclosure), and the debt is paid out of the proceeds. During periods of economic depressions jurisdictions may pass temporary mortgage moratorium statutes that give courts discretionary power to refuse to foreclose mortgages. In a reverse mortgage, a homeowner borrows against the value of a house to receive a line of credit or monthly payments. Reverse mortgages are used by elderly homeowners as a way of obtaining cash, and normally the loan is paid off when the homeowner dies (or sells the property). Major mortgage providers and resources in the United States include:
The mortgage is an instrument that the borrower (called the mortgagor) uses to pledge real property Real property is type of property that is opposed to personal property. Real property is generally a term used in common law jurisdictions as opposed to immovable property in civil law jurisdictions (immobilier in French). Generally speaking most real property consists, at least partially, of real estate. The mortgage instrument contains two parts:
To protect the lender, a mortgage is recorded in the public records creating a lien (when there are multiple liens, order of recording determines priority). A mortgage was an instrument that on its face was absolute and conveyed a fee simple. Fee simple, also known as fee simple absolute or allodial, is a term of art in common law. It is the most common way real estate is owned in common law countries, and is the most complete ownership interest someone can have in real property. In common law legal terminology, one does not "own" the real estate; one has an estate in the land conferring certain rights. The fee simple estate is also called "estate in fee simple" or "fee-simple title." Mortgage lending is a major category of the business of finance. Mortgages are commercial paper and can be conveyed and assigned freely to other holders. In the USA the Home Owners Loan Corporation The Home Owners Loan Corporation was a New Deal agency established in 1933 to refinance homes to prevent foreclosure. The Government National Mortgage Association (GNMA, also known as Ginnie Mae) was created by the United States Federal Government through a 1968 partition of the Federal National Mortgage Association. The GNMA is a wholly owned US corporation, Department of Housing and Urban Development (HUD). Its main purpose is to provide financial assistance to low- to moderate-income homebuyers, by promoting mortgage credit and to foster mortgage lending and thus to encourage home ownership. There are many types of mortgage loans. The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). With FRM loans, the interest rate and consequently the monthly payment, is fixed for the life of the loan. In the United States, the loan term is usually for 10, 15, 20, or 30 years. In an ARM, the interest rate will adjust up or down to some market index. Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where unpredictable interest rates make fixed rate loans difficult to obtain. Since the risk is transferred lenders will usually make the initial interest rate of the ARM's note anywhere from 0.5% to 2% lower than the average 30-year fixed rate. A partial amortization or balloon loan is similar to a FRM, but the balance is due at some point short of the full term. Other loan types: An interest-only loan is a loan in which for a set term the borrower pays only the interest on the capital; the capital remains owing. At the end of the term the borrower repays the capital, or (with some lenders) converts the loan to a repayment loan. In the United States, a five or ten year interest-only period is typical. After this time, the principal balance is amortized for the remaining An equity loan is a mortgage placed on real estate in exchange for cash to the borrower. For example, if a person owns a home worth $100,000, but does not currently have a lien on it, they may take an equity loan at 80% loan to value (LVR) or $80,000 in cash in exchange for a lien on title placed by the lender of the equity loan. A blanket loan is a mortgage lient securing several parcels of property, frequently used by developers who have purchased a single tract of land intending to subdivide into individual parcels. The developer normal requires a "partial release" clause so that individual parcels can be released from the blanket mortgage as they are sold. A reverse mortgage (known as equity withdrawal in the United Kingdom) is a type of loan used by older consumers as a way of converting their home equity into a cash payment while retaining ownership of their property. To qualify for a reverse mortgage in the United States, you must be at least 62 and have paid off all or most of your home mortgage. A bridge loan is a type of short-term loan in the financial industry. Bridge loans are typically taken out for a period of 2 weeks to 3 years in order to finance other projects. Uses for bridge loans include real estate purchases, retrieving real estate from foreclosure and business loans for operating capital. |
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