mortgage

Dictionary


  • a conditional conveyance of property as security for the repayment of a loan put up as security or collateral

    • Wikipedia


    Template:PropertyLaw A mortgage is method of using property as Security (finance)security for the payment of a debt.Technically the term mortgage (from Law French, lit. "dead pledge") refers to the ''legal device'' used in securing the property, but it is also commonly used to refer to the debt secured by the mortgage. In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property and in some cases only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals or businesses can purchase residential or commercial real estate without the need to pay the full value immediately.In many countries it is normal for home purchase to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed; notably in Great Britain, Spain & USA.

    Participants and variant terminology - Each legal system tends to share certain concepts but varies in the terminology and jargon they use. In general terms the main participants in a mortgage are:
  • The creditor - variously referred to as the ''mortgagee'' or ''lender''. They have legal rights to the debt secured by the mortgage and often make a loan to to the debtor of the purchase money for the property. Typically creditors are banks, insurers or other financial institutions who make loans available for the purpose of real estate purchase.
  • The debtor(s) - variously referred to as the ''mortgagor(s)'' or ''borrower(s)''. They must meet the requirements of the mortgage conditions (and often the loan conditions) imposed by the creditor in order to avoid the creditor enacting provisions of the mortgage to recover the debt. Typically the debtors will be the individual home-owners, landlords or businesses who are purchasing their property by way of a loan. Other ParticipantsDue to the complicated legal exchange (conveyance) of the property one or both or the main participants are likely to require legal representation. The terminology varies with legal jurisdiction, see: lawyer, solicitor and conveyancer. Due to the complex nature of many markets the ''debtor'' may approach a Mortgage brokermortgage broker or financial adviser to help them source an appropriate ''creditor'' typically by finding the most competitive loan. The debt is sometimes referred to as the ''hypothecation''.

    Legal Aspects - There are essentially two types of legal mortgage:
  • Mortgage by demise - The creditor becomes the owner of the mortgaged property until the loan is repaid in full (known as "redemption"). This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.This is an older form of legal mortgage and is less common than a mortgage by legal charge.
  • Mortgage by legal charge (also known as standard security in Scotland) - The debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, such as a right to take possession of the property or sell it.To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the largest debt owed by the debtor, banks and other mortgage lenders run title searches of the real property to make certain that there are no mortgages already registered on the debtor's property which might have higher priority. Tax liens, in some cases, will come ahead of mortgages. For this reason, if a borrower has delinquent property taxes, the bank will often pay them to prevent the lienholder from Foreclosureforeclosing and wiping out the mortgage.This type of mortgage is common in US and, since 1925, it has been the usual form of mortgage in England and Wales.

    History - At common law, a mortgage was a conveyance of land that on its face was absolute and conveyed a fee simple estate, but which was in fact conditional, and would be of no effect if certain conditions were not met --- usually, but not necessarily, the repayment of a debt to the original landowner. Hence the word "mortgage," Law French for "dead pledge;" that is, it was absolute in form, and unlike a "live gage", was not conditionally dependent on its repayment solely from raising and selling crops or livestock, or of simply giving the fruits of crops and livestock coming from the land that was mortgaged. The mortgage debt remained in effect whether or not the land could successfully produce enough income to repay the debt. In theory, a mortgage required no further steps to be taken by the creditor, such as acceptance of crops and livestock, for repayment. The difficulty with this arrangement was that the lender was absolute owner of the property and could sell it, or refuse to reconvey it to the borrower, who was in a weak position. Increasingly the courts of equity began to protect the borrower's interests, so that a borrower came to have an asbolute right to insist on reconveyance on redemption. This right of the borrower is known as the "equity of redemption".This arrangement, whereby the mortgagee (the lender) was on theory the absolute owner, but in practice had few of the practical rights of ownership, was seen in many jurisdictions as being awkwardly artificial. By statute the common law position was altered so that the mortgagor would retain ownership, but the mortgagee's rights, such as foreclosure, the power of sale and the right to take possession would be protected.In the United States, those states that have reformed the nature of mortgages in this way are known as lien states. A similar effect was achieved in England and Wales by the Law of Property Act 1925, which abolished mortgages by the conveyance of a fee simple.In 2003, total U.S. residential mortgage production reached a record level of $3.8 trillion through record low interest rates (though these continue to vary according to credit scorecredit rating rates.creditcrank.com).

    Repaying the capital - There are various ways to a mortgage loan depending on your locality, tax laws and prevailing culture.

    Capital & interest - The most common way to repay a loan is make regular payments of the capital and interest over a set term. This is commonly referred to as (self) amortization in the US and as a repayment mortgage in the UK. Depending on the size of the loan and the prevailing practise in the country the term may be short 10 years or long 50 years plus. In Germany 99 year mortgages handed down to children are not unusual, but this reflects the German tendancy to expand the home to accomodate the wider family. In the UK and US 25 to 30 years is typical. Mortgage repayments are (typically made monthly) contain a capital element and an interest element. The amount of capital included in each repayment varies throughout the term of the mortgage. In the early years the repayments are largely interest and a small part capital. Towards the end of the mortgage the repayments are mostly capital and a small part interest. In this way the repayment amount determined at outset is calculated to ensure the loan is repaid at a specified period in the future. This gives borrowers assurance that by maintaining repayment the loan will definately be cleared at a specified date.

    Interest only - The main alternative to capital and interest mortgage is an interest only mortgage where the capital is not repaid throughtout the term. This type of mortgage is common in the UK especially when associated with a regular investment plan. With this arrangement a regular contributions are made to an separate investment plan designed to build up a lump sum to repay the mortgage at maturity. This type of arrangement is called an investment-backed mortgage or is often related to the type of plan used: endowment mortgage if an endowment policy is used, similarily a PEP mortgage, ISA mortgage or Personal pensionpension mortgage. Historically investment-backed mortgages offered various tax advantages over repayment mortgages although this is no longer the case in the UK. Investment-backed mortgages are seen as higher risk as they are dependedent on the investment making sufficient to clear the debt. It is not uncommon for interest only mortgage to be arranged without a repayment vehicle with the borrrower gambling that the property market will rise sufficently for the loan to be repaid by trading down at retirement or for other less well thought-out reasons.

    No capital or interest - For older borrowers (typically in retirement) it is possilbe to arrange a mortgage where neither the capital or interest is repaid. The interest is rolled up with the capital increasing the debt each year. These arrangements are variously called reverse mortgages, lifetime mortgages or equity release mortgages in different countries. The loans are typically not repaid until the borrowers die, hence the age restriction. For further details see equity release.

    Interest and partial capital - In the US a partial amortization or balloon loan is one where the amount of monthly payments due are calculated (amortized) over a certain term, but the outstanding capital balance is due at some point short of that term. In the UK a part repayment mortgage is quite common especially where the original mortgage was investment-backed and on moving house further borrowing is arranged on a capital & interest (repayment) basis.

    US Mortgage finance industry - Mortgage lending is a major category of the business of finance in the United StatesUnited States of America. Mortgages are commercial paper and can be conveyed and assigned freely to other holders. In the U.S., the Federal Housing Administration administers the programs colloquially known as "Government National Mortgage AssociationGinnie Mae", Federal National Mortgage AssociationFannie Mae and "Federal Home Loan Mortgage CorporationFreddie Mac" (also known as the GSEs or government sponsored entities) to foster mortgage lending and thus to encourage owner-occupierhome ownership and construction. These programs work by buying a large number of mortgages from banks and issuing (at a slightly lower interest rate) "mortgage-backed bonds" to investors known as MBS or Mortgage Backed Securities. This allows the banks to quickly relend the money to other borrowers (including in the form of mortgages) and thereby to create more mortgages than the banks could with the amount they have on deposit. This in turn allows the public to use these mortgages to purchase homes, something the government wishes to encourage. The investors, meanwhile, gain low-risk income at a higher interest rate (essentially the mortgage rate, minus the cuts of the bank and GSE) than they could gain from most other bonds.Securitization is a momentous change in the way that mortgage bond markets function which has grown rapidly in the last 10 years as a result of the wider dissemination of technology in the mortgage lending world. For borrowers with superior credit, government loans and ideal profiles, this securitization keeps rates almost artificially low, since the pools of funds used to create new loans can be refreshed more quickly than in years past, allowing for more rapid outflow of capital from investors to borrowers without as many personal business ties as the past.

    Process (USA) - In the USA, the process by which a mortgage is secured by a borrower is called origination. This involves the borrower submitting an application and documentation related to his/her financial history to the underwriter. Many banks now offer "no-doc" or "low-doc" loans in which the borrower is required to submit only minimal financial information. These loans carry a slightly higher interest rate (perhaps 0.25% to 0.50% higher) and are available only to borrowers with excellent credit.Sometimes, a third party is involved, such as a mortgage broker. This entity takes the borrower's information and reviews a number of lenders, selecting the ones that will best meet the needs of the consumer.Loans are often sold on the open market to larger investors by the originating mortgage company. Many of the guidelines that they follow are suited to satisfy investors. Some companies, called correspondent lenders, sell all or most of their closed loans to these investors, accepting some risks for issuing them. They often offer niche loans at higher prices that the investor does not wish to originate.If the underwriter is not satisfied with the documentation provided by the borrower, additional documentation and conditions may be imposed, called stipulations. The meeting of such conditions can be a daunting experience for the consumer, but it is crucial for the lending institution to ensure the information being submitted is accurate and meets specific guidelines. This is done to give the lender a reasonable guarantee that the borrower can and will repay the loan. If a third party is involved in the loan, it will help the borrower to clear such conditions.These documents typically required for underwriter review. Many of these are not required for no-doc and low-doc loans.
  • credit report
  • 1003 -- Uniform Residential Loan Application
  • 1004 -- Uniform Residential Appraisal Report
  • 1005 -- Verification Of Employment (VOE)
  • 1006 -- Verification Of Deposit (VOD)
  • 1007 -- Single Family Comparable Rent Schedule
  • 1008 -- Transmittal Summary
  • Copy of deed of current home
  • federal income tax records for last two years
  • Verification Of Mortgage (VOM) or Verification Of Payment (VOP)
  • Borrower's Authorization
  • Purchase Sales Agreement
  • 1084A and 1084B (Self-Employed Income Analysis) and 1088 (Comparative Income Analysis) -- used if borrower is self-employed

    US Mortgage loan types - 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).In a FRM, the interest rate, and hence monthly payment, remains fixed for the life (or term) of the loan. In the U.S., the term is usually for 10, 15, 20, or 30 years. In the UK the fixed term can be as short as five years, after which the loan reverts to a variable rate (which makes the loan an ARM).In an ARM, the interest rate is fixed for a period of time, after which it will periodically (annually or monthly) adjust up or down to some market index. Common indices in the U.S. include the Prime Rate, the LIBOR, and the Treasury Index ("T-Bill"). Other indexes like 11th District Cost of Funds Index, COSI, and MTA, are also available but are less popular. 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.In most scenarios, the savings from an ARM outweigh its risks, making them an attractive option for people who are planning to keep a mortgage for ten years or less. A ''partial amortization'' or ''balloon loan'' is one where the amount of monthly payments due are calculated (amortized) over a certain term, but the outstanding principal balance is due at some point short of that term. A ''balloon loan'' can be either a Fixed or Adjustable in terms of the Interest Rate. Many Second Trust mortgages use this feature. The most common way of describing a ''balloon loan'' uses the terminology X due in Y, where X is the number of years over which the loan is amortized, and Y is the year in which the principal balance is due. Other loan types:
  • blanket loan
  • bridge loan
  • budget loan
  • deed of trust
  • equity loan
  • hard money loan
  • package loan
  • participation mortgage
  • reverse mortgage
  • repayment mortgage
  • seasoned mortgage
  • term loan or interest-only loan
  • wraparound mortgage
  • Negative amortization loan

    Costs involved in a mortgage - Lenders may charge various fees when giving a mortgage to a mortgagor. These include entry fees, exit fees, administration fees and lenders mortgage insurance. There are also settlement fees (closing costs) the settlement company will charge. In addition, if a third party handles the loan, it may charge other fees as well.UK banks usually charge a valuation fee, which pays for a chartered surveyor to visit the property and ensure it is worth enough to cover the mortgage amount. This is not a full survey so it may not identify all the defects that a house buyer needs to know about. Also, it does not usually form a contract between the surveyor and the buyer, so the buyer has no right to sue if the survey fails to detect a major problem. For an extra fee, the surveyor can usually carry out a building survey or a (cheaper) "homebuyers survey" at the same time.rics.org - Guide to buying in the UK from the rics.org - Royal Institution of Chartered Surveyors.

    Islamic mortgages - Islamic Sharia law prohibits the payment or receipt of interest, which means that practising Muslims cannot use conventional mortgages. However, real estate is far too expensive for most people to buy outright using cash: Islamic mortgages solve this problem by having the property change hands twice. In one variation, the bank will buy the house outright and then act as a landlord. The homebuyer, in addition to paying Economic_rentrent, will pay a contribution towards the purchase of the property. When the last payment is made, the property changes hands.An alternative scheme involves the bank reselling the property according to an installment plan, at a price higher than the original price.In the United Kingdom, HSBC was the first major bank to offer Islamic mortgages.

    Dutch mortgages - Dutch banks often adopt a scheme that could be considered the very opposite of the islamic one. In a so-called "aflossingsvrije" mortgage, the homeowner only pays the interest, but never pays any of the mortgage sum back. Instead, s/he pays some monthly sum into a savings account — which becomes part of the collateral — and uses the contents of this savings account to pay off the entire debt at once when the amount of money in the account equals the mortgage sum. This exceedingly contrived construction exists only because it ends up creating a larger deductible on the homeowner's income tax. Variants exist where a share account or a life insurance is used instead of a savings account.

    Torrens title registration system - Under the Torrens titleTorrens title registration system of land ownership registration, mortgages and easements are recorded on the title at the central registry, so that any buyer knows for certain whether a block of land is subject to a mortgage or not. This is a simple process, which reduces transaction costs involved in the sale of land.

    Glossary of US Mortgage Terms -
  • Adjustable rate mortgageAdjustable Rate Mortgage (ARM)
  • Amortization (business)
  • fixed rate mortgageFixed-Rate Mortgage (FRM)
  • Fannie Mae - Federal National Mortgage Association.
  • Fair Isaac (FICO) - One of the three main credit bureaus. A FICO score of 600 would be similar to a "C" in public school grading or a "C-" in private school grading.
  • FHLB Advances - Funding provided by Federal Home Loan Banks.
  • Freddie Mac - Federal Home Loan Mortgage Corporation.
  • Government Sponsored Entity (GSE) - Private organizations with government charters whose function is to provide liquidity for the residential loan market. GSEs purchase loans from lenders and assume risk for the asset, thereby protecting the investors in the MBS.
  • Home Equity Loan (HEL)
  • Homeowners Insurance - Package policy that combines (1) coverage against the insured’s property being destroyed or damaged and (2) coverage for liability exposure of the insured.
  • Jumbo mortgages - Loans with high risk of default ''ab initio.''
  • Loan to value (LTV) - Loan Amount / Value of property.
  • *Combined loan to value (CLTV). All loans outstanding (i.e. 1st & 2nd) / Value of property.
  • No Income No Asset (NINA)
  • No Income Verification (NIV) Income is not verified but many times is "Stated" by the applicant borrower.
  • No Documentation (No Doc) Income or assets are not stated. Typically requires a low LTV and higher credit scores.
  • Manufactured housing (MH)
  • Mortgage Insurance (MI)
  • Mortgage Servicing Rights Mortgage Service Rights (MSR) - The capitalized asset that represents the value of the servicing fees to be realized over the life of the loan. (See also yield to maturity)
  • Pooling — The process of grouping together mortgage loans with similar characteristics.
  • Quitclaim deed (QCD)
  • Real estate appraisal
  • Second mortgage Additional loan that is subordinate to the primary mortgage
  • Secondary mortgage market — The market where lenders and investors buy and sell existing mortgages and MBS securities.
  • Securitization — The process of pooling loans into mortgage-backed securities for sale into the secondary mortgage market.
  • Verification of employment (VOE)

    See also -
  • Location Efficient Mortgage
  • Deed
  • pre-qualification
  • pre-approval
  • VA loan
  • FHA loan
  • Commercial lenders
  • mechanics lien
  • Refinancing
  • eMortgages
  • Commercial Mortgage
  • Buy to let
  • Fixed rate mortgage calculations (USA)Category:Contract lawCategory:Personal financeCategory:Real estateCategory:Real property lawCategory:Retail financial !servicesda:Pantde:Hypothekes:H ipotecafr:Hypothèquehe:משכ נתאhu:Zálogjognl:Hypotheek ja:抵当権pl:Hipotekaru:Ип отекаfi:Kiinnitysuk:Іп тека

    • Websites


    Personal Mortgage Brokers Serving RI, MA, CT, FL
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    Real Property Planet
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    Mortgage 101
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    Mortgage Bankers Association of America
    Offers information on buying a home, financing, market data, conferences and industry news.
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    Mortgage.com
    Mortgage banking firm offers real estate lending nationwide.
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    Mortgagecalc.com
    A collection of tools for mortgage and financing needs.
    http://www.mortgage-calc.com

    HouseHunt
    Links to local real estate agents and brokers across the US.
    http://www.househunt.com
    Personal tools
    • DirPedia.com
      • - combining a dictionary, an encyclopedia and a web directory