Mortgage Loans – Basic Elements

Mortgage is a type of loan where an owner of real estate pledges his right to the property as collateral for a loan. Because of this, an encumbrance is placed on the property given as security which allows the lender of the fund to return his funds by selling the secured property. Mortgage has, over time, developed into a generic term for any loan secured by some sort of property. Typical period for a mortgage loan to amortize is 30 years, although this can be shorter or longer. And, just like any other loan, a mortgage loan has an interest rate, which can vary greatly. Mortgage loans are used in most countries of the world to finance private real estate ownership, since not many people have a chance to buy a home outright.

The basic  components of a mortgage loan, even though they vary slightly from one legal system to another, are basically the same:

borrower-los× Property:  is the real estate which the borrower of funds  is purchasing.

× Mortgage: is the collateral, or the security interest the lender places on the property used as security. This, consequently, leads to different restrictions placed on the property (in terms of usage or disposal).

× Borrower: is the side which receives the funds and uses them to purchase property to become a home owner (or other purpose, depending on the type of loan)

× Lender: is the side which  provides the funds which the borrower uses and it is, in most cases, a bank or other financial institution.

× Principal: is the original size of the loan, and it can include other costs of the loan

× Interest: is the price of money, colloquially speaking. It represents the price the borrower has to pay for the use of lender’s money.

× Foreclosure or repossession: legally established right of the lender to foreclose, or take over the property the borrower has provided as security of the loan. It gives the lender the right to , under legally recognized circumstances, to take possession of the property in order return the money he invested into the loan. This is the essence of mortgage; without this institute, it would be no different than any other loan.

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× Completion: signifies the completion of the mortgage deed, in  legal terms, and the actual start of the mortgage.

× Redemption: a mortgage account is „redeemed“ once the final payment of the loan has been payed. It can be a natural redemption or a lump sum redemption, depending on the kind of payment.

These are essential features of any mortgage loan, but different legal systems recognize other elements. Regulators usually take a lot of care when mortgages are at question, since mortgage loans can be a very important element of a nation’s economy, especially in very developed markets. Regulation is done either directly or indirectly (legal requirements or banking industry internal regulation). Many other aspect can be of importance in mortgage regulation: regional, historical, economical, or they can be influenced by specific features of the financial or legal system.

How to Get a Mortgage Loan Step by Step

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