A mortgage loan or simply mortgage, in civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. Mortgage loan

Mortgage Loan

Is a mortgage the same as a loan?

A loan is a financing agreement between a lender and a borrower, where the latter borrows a certain amount of cash and repays it over a period of time.

A mortgage, or home loan, is a type of loan used to buy real estate, and secured by the purchased land or house.

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Which is better loan or mortgage?

Usually, a mortgage loan is a better option as they offer higher loan limits, lower interest rates, and longer repayment terms.

Why is it called a mortgage and not a loan?

Image result The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning “death pledge” and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure.

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Who owns a mortgaged house?

The title deeds to a property with a mortgage are usually kept by the mortgage lender. They will only be given to you once the mortgage has been paid in full.

Who creates a mortgage?

A mortgage lender is a financial institution or mortgage bank that offers and underwrites home loans. Lenders have specific borrowing guidelines to verify your creditworthiness and ability to repay a loan. Mortgage loan

Does mortgage mean ownership?

The difference between Title and Mortgage

The mortgage on the other hand is a just an agreement to pay back the full amount of the loan that was taken out to pay for the property.

If you sign the mortgage, this means you’re obligated to pay the loan amount back, but it does not give you legal ownership of the property.

Can mortgage property be sold?

Since all the original property documents are in the custody of the lender until the loan is closed, one can sell a mortgaged property with the process stated below.

Loans availed to purchase immovable properties typically require the property to be mortgaged to the lending institution.

Mortgages – Residential vs. Commercial

Both residential and commercial mortgages share some common characteristics, including that lenders take property as collateral, they generally require an appraisal, and both typically have a more favorable loan structure than other types of credit.

Residential Mortgages

Some key characteristics include:

  • The borrower(s) is usually servicing the mortgage with their personal earnings and must therefore be able to prove they have a stable income, provide evidence of any other valuable outside assets, and demonstrate a good credit history.
  • Residential properties tend to have very active secondary markets and, therefore, generally support higher LTVs (loan-to-values) – often up to 95%.
  • The property is often occupied by the borrower, meaning it’s their primary residence.
  • The borrower is typically an individual (or a married couple).
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Commercial Mortgages

Some key characteristics include:

  • Commercial properties tend to have many restrictions on uses and, therefore, fewer prospective occupants. This generally means much lower LTVs (loan-to-values) – more like 50%-75%.
  • Understanding default risk for a rental property is even more difficult, as the lender will not have access to the tenant’s financial information – commercial mortgage deals for investment properties are analyzed based on the geographic location, the quality of the property, and the strength of the lease agreement (among others).
  • Understanding the cash flows for a business operation requires a much more extensive analysis of the underlying business, including its financial health, management capabilities, and competitive advantage(s).
  • The borrower isn’t servicing the mortgage with personal earnings; cash to service the mortgage obligation comes from either business operations (if they run a company on site) or rental income (if it’s an investment property).
  • The borrower is generally a company, such as a corporation or a partnership (although individuals can still own commercial properties).

Mortgage Payments

A mortgage payment is made up of two components – interest and principal.

Interest rates vary by jurisdiction and other market conditions; the risk of the borrower and the borrowing request also influence interest rates. Interest rates are generally either fixed or variable (often called floating).

Loan

The principal portion of the payment amount goes toward paying down the original mortgage amount outstanding.

The original amount outstanding is usually scheduled to be repaid to zero on the last payment of the amortization period – which may be 25-30 years.

Because the amortization periods of mortgage loans are so long, it tends to be that a high proportion of the payment amount early in the amortization period is interest, with the inverse being true as time progresses.

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Who Provides Mortgage Loans?

Mortgage loans are often made by banks and other traditional financial institutions (like credit unions), but not always.

Life insurance companies, pension funds, and other large asset management firms also have mortgage lending arms.

In fact, mortgage loans (from the lender’s perspective) tend to represent very stable and consistent sources of future cash flows by way of the borrower’s monthly payments.

Mortgages are also issued by other private investors (both individual and institutional); these parties pool funds into various forms of mortgage trusts to create private lending entities.

These funds are often deployed to home buyers and real estate investors by way of mortgage brokerage companies.

A mortgage broker is not themselves a direct lender. A borrower will generally enlist the services of a mortgage broker to help them “shop around” to all the previously noted mortgage lenders in order to secure the best rate and terms for their borrower.

The broker is typically paid by the lender that closes the deal.


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