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Sunday, March 6, 2011

Mortgage concepts and legal regulation

A mortgage occurs when an owner (in real property) guarantees his interest (right to the property) as security for a loan. Therefore, a mortgage is a burden (limitation) on the right to the property, the word mortgage has become the generic term for a loan secured by real property.

As with other types of loans, mortgages have an interest rate and are scheduled to amortize over a set period of time, typically 30 years. All types of real property can be, and usually are, secured with a mortgage and bear an interest rate that is supposed to reflect the lender's risk.

Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential and commercial property. Although the terminology and precise forms will differ from country to country, the basic components tend to be similar:

> Property: the physical residence being financed. The exact form of ownership will vary from country to country, and may restrict the types of lending that are possible.
> Mortgage: the security interest of the lender in the property, which may entail restrictions on the use or disposal of the property. Restrictions may include requirements to purchase home insurance and mortgage insurance, or pay off outstanding debt before selling the property.
> Borrower: the person borrowing who either has or is creating an ownership interest in the property.
> Lender: any lender, but usually a bank or other financial institution. Lenders may also be investors who own an interest in the mortgage through a mortgage-backed security. In such a situation, the initial lender is known as the mortgage originator, which then packages and sells the loan to investors. The payments from the borrower are thereafter collected by a loan service holder.
> Principal: the original size of the loan, which may or may not include certain other costs; as any principal is repaid, the principal will go down in size.
> Interest: a financial charge for use of the lender's money.
> Foreclosure or repossession: the possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan; without this aspect, the loan is arguably no different from any other type of loan.
Governments usually regulate many aspects of mortgage lending, either directly (through legal requirements) or indirectly (through regulation of the participants or the financial markets, such as the banking industry), and often through state intervention (direct lending by the government, by state-owned banks, or sponsorship of various entities).

Saturday, March 5, 2011

Mortgage Loan

A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the burden of that real property through the granting of a mortgage which secures the loan.
A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries.
Features of mortgage loans are:
- The size of the loan,
- Maturity of the loan,
- Interest rate,
- Method of paying off the loan and other characteristics can vary considerably.