What is a Mortgage?

Before punching numbers in a mortgage calculator and shopping mortgage rates to decide which mortgage may be right for you, understand what it is you are trying to get a hold of.  Gaining knowledge of what a mortgage is can be an important tool in searching for the right mortgage and help recognize the value of your rights and responsibilities while you have a mortgage. 

Technically speaking, a mortgage is a written legal contract that establishes the rights and liabilities of both the creditor and debtor and creates a lien upon real estate.  The mortgage is the pledge of the real estate as security for payment of a debt.  The mortgage is actually the lien on the home and not the loan itself.  The mortgage lender, bank or any financial institution that holds the mortgage, has an interest in the property, they do not own the property.  Often the term mortgage or loan or the combination mortgage loan are all used to mean the same thing.

The borrower or debtor is the party pledging the real estate as collateral for the home loan and therefore gives the mortgage.  The mortgage lender or creditor is the party providing the loan or note that is secured by the property in the form of a mortgage on that property.  The borrower is the mortgagor and the lender or mortgage company is the mortgagee. 

Since the borrower pledges his or her property as security for repayment of a debt, the mortgage creates a lien against the borrower’s property.  The lending institution, mortgagee, holds that lien.  In return for holding the lien or mortgage on the property,the mortgage company is also agreeing to loan the homeowner or prospective homeowner money.  The terms of how much money is loaned, at what interest rate and for how long is established in the note or promise of repayment, but not on the mortgage itself.  If the home loan borrower doesn’t keep their promise of repayment and default on the loan terms, the mortgage that pledges your property as security gives the lender the right to initiate foreclosure and sell property to satisfy the home loan debt if necessary.

The foreclosure action starts due to the failure to make the timely payments.  Foreclosure allows the mortgagee to declare that the entire mortgage debt is due and must be paid immediately.  This is accomplished through an acceleration clause in the mortgage.  Failure to pay the mortgage debt once foreclosure of the property occurs, leads to seizure of the security interest, the home and land, and it’s sale to pay for any remaining mortgage debt.  How the foreclosure process is carried out depends on state law and the terms of the mortgage.

There are several types of mortgage loans available with a variety of terms, interest rates and costs.  Which loan is best for any particular borrower depends on many factors about financial position and lifestyle choices.  The mortgage calculators will be a good resource to help ascertain the best possible mortgage rates and terms that fit a borrowers budget.  Research the mortgage rates, terms and cost and comparison shop to match the right mortgage loan to your needs.

Tags: foreclosure, home loan, mortgage, mortgage calculator, mortgage rates

This entry was posted on Tuesday, March 31st, 2009 at 2:32 pm and is filed under Mortgage Basics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.