Some Simple Mortgage Facts

In the simplest of terms a mortgage is a secured interest type loan on real property granted by a lender to a borrower. A mortgage loan applies to real property which in broader terms means undeveloped land and property with existing homes. In technical jargon a mortgage encumbers property; the property owner is burdened with a monetary commitment to repay the loan. Mortgage loans are defined as “secured” loans since in the lending documents the lender’s legal rights to foreclose and gain ownership of the encumbered property in event of default are guaranteed. In a mortgage the property serves as its own collateral.

There are many ways to go about obtaining a mortgage; banks, credit unions, mortgage firms and other financial institutions offer mortgages. The borrower needs to decide the amount of loan they need, the loan period they prefer, rates of interests possible in the various loans they may qualify for and determine how they plan to pay the loan off. Though this procedure may seem overwhelming at first, online there are innumerable loan calculators that offer free help in making essential loan calculations and decisions.

Mortgage loans are available in two types; equitable and legal. An equitable mortgage is one that does not meet all the criteria for a legal mortgage but it takes effect with an agreement and intent to undertake a legal mortgage. A legal mortgage is one in which a borrower conveys to a lender an interest in property (real estate property) as security for the repayment of loan debt; it is confirmed by the mortgage note (documentation of terms).

Once a mortgage is finalized it is critical that the borrower make the mortgage payments in a timely manner to prevent going into default and losing the secured property to the lender through foreclosure. Secured lenders have the legal right to use all remedies available to them to collect the outstanding loan and any associated fees. Once the lender has gained ownership of the property through legal channels (foreclosure) the property will be sold to recoup the value of the defaulted loan. If the full loan amount plus fees is not realized when the lender sells the property, the lender can chose to sue the borrowers on the mortgage document to recover any money not recovered at point of sale. It is important that borrowers understand that when they fail to make payments they risk losing the property to the lender and foreclosure.

If you are a borrower confident in your ability to make regular payments, apply for a fixed interest rate mortgage rather than one with variable rates. Fixed rates lock in the interest rate for the life of the loan; a huge advantage for those who have the intent to keep the property for the duration of the loan. Variable rates can increase unexpectedly and result in larger payments that are more difficult to meet. If you can meet the requirements, a fixed rate loan is often preferable over a variable rate mortgage.