A mortgage is a type of security interest that attaches to property. It serves as collateral for the repayment of loan that a person borrowed from a bank or other financial institution in order to pay for the property.
In other words, when a person wants to buy a house and they do not have enough money to purchase it out right, a bank or other lender will provide the money to purchase it. A mortgage is then placed on the property so that if a person defaults on the loan, then a bank or other financial institution will have the right to take possession of that property.
- Promissory Note: A promissory note is a type of legal contract. The terms of the promissory note typically state that one party will promise to repay a specific amount of money to the lending party (e.g., a bank) in a given time frame. The promissory note holds the borrower responsible for repaying the loan even if the borrower sells the property.
- Mortgage (Deed of Trust): A mortgage or deed of trust document acts as a lien on the property. This means that if a borrower does not repay the loan, the financial institution may force them to repay it by selling the property. The mortgage document guarantees that a financial institution will get their money back even if it is not the actual borrower who makes the repayments.
Choosing the right mortgage may be crucial to ensuring a person’s financial stability in the future. The following list includes some of the main types of mortgages:
- Fixed Rate Mortgages: A fixed rate mortgage refers to a scenario where a borrower takes out a loan from a financial institution in order to pay for a house and receives an interest rate and fixed monthly payment that will be determined before the loan is accepted. These values will remain the same for as long as the borrower agrees to pay off the loan.
- Adjustable Rate Mortgages: In contrast to a fixed rate mortgage, an adjustable rate mortgage occurs when the interest rate and monthly payment of the borrowed home loan remain the same for only an initial period (usually ranging from six months to five years). After the initial period has lapsed, the interest rate and monthly payments are allowed to be periodically adjusted based upon current market interest rates.
- Balloon Mortgages: A balloon mortgage starts off with an interest rate and monthly payment that is fixed for the duration of the loan, but after a short amount of time that is set by the lender, the entire loan must be paid back in full.
- Interest-only Mortgage: This type of mortgage is an interest-only payment method, which can be combined with any type of traditional mortgage. Depending on the terms set out in the mortgage, during an initial period the borrower only pays for the interest portion of the loan, thereby reducing the payment.
- After this initial period ends, the payment amount will increase to include both the interest and the principal, which is often a higher amount than payments would have been using more traditional payment methods.
Before applying for a mortgage, the following information must be provided to the bank or other lending institution:
- The person’s value of current assets (e.g., cars, other property, etc.);
- Their value and type of debts, such as student loans or medical debts;
- Employment history and current income;
- Source of down-payment (i.e., where is the down-payment coming from? Are a person’s relatives contributing to it, etc.); and
- Their credit score and history.
It is important to note that what is considered a good credit score will vary depending on the mortgage lender. Thus, it is vital that a person knows their credit score as well as the particular credit score that will qualify them to receive a mortgage from their chosen lender.
A common outcome of a mortgage lawsuit is that the lender may be granted a lien. This means that they will be allowed to take possession of the borrower’s property (i.e., the homeowner) to make up for the missed payments.
Once a person fails to repay their mortgage back, the lender has a right to begin the foreclosure process. Even after a lender starts the foreclosure process, a person who has defaulted may be given a grace period to repay the missed payment.
If the person does not pay their mortgage by the end of the specified grace period, then the lender may report them to the credit bureau. If this happens, it can bring down their credit score and it will appear on the person’s credit history.
Additionally, they will receive a default notice and notification that foreclosure will begin on the property. If it is not possible to pay off the missed payment (along with any interest) in full before foreclosure begins, then the lender or the courts will take control over the borrower’s house and sell it to be reimbursed. The lender will be paid the remaining amount of the loan from the proceeds of the foreclosure sale.
Other remedies may include garnishment of wages to make up for the missed payments. However, the parties may often agree to a new debt arrangement that would be more beneficial for each party involved.
Buying a house can be a complex and daunting task, but if done properly, it can save you a lot of money over the duration of your mortgage. A mortgage attorney that is familiar with the market in your area can be a helpful guide throughout the process.