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 Home loans and refinancing a mortgage...
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Description / Definition:
A mortgage is a method of using property (real or personal) as security for the payment of a debt.
The term mortgage (from Law French, lit. death vow) 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, the mortgage loan.
In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) 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. See mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property.
In many countries it is normal for home purchases to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed, notably in Spain, the United Kingdom and the United States.
About Home loans refinancing and mortgages:
Participants and variant terminology
Each legal system tends to share certain concepts but vary in the terminology and jargon they use.
In general terms the main participants in a mortgage are:
Creditor
The creditor has legal rights to the debt secured by the mortgage and often makes a loan 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.
A creditor is sometimes referred to as the mortgagee or lender.
Debtor
The debtor[s] 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.
A debtor is sometimes referred to as the mortgagor, borrower, or obligor.
Other participants
Due to the complicated legal exchange, or conveyance, of the property, one or both of the main participants are likely to require legal representation. The terminology varies with legal jurisdiction; see lawyer, solicitor and conveyancer.
Because of the complex nature of many markets the debtor may approach a mortgage broker or financial adviser to help them source an appropriate creditor typically by finding the most competitive loan. Recently, many US consumers (particularly higher income borrowers) are choosing to work with Certified Mortgage Planners, industry experts that work closely with Certified Financial Planners to align the home finance position(s) of homeowners with their larger financial portfolio(s).
The debt is sometimes referred to as the hypothecation, which may make use of the services of a hypothecary to assist in the hypothecation.
In addition to borrowers, lenders, government sponsored agencies, private agencies; there is also a fifth class of participants who are the source of funds - the Life Insurers, Pension Funds, etc.
Other Terminologies
Like any other legal system, the mortgage business sometimes uses confusing jargon. Below are some terms explained in brief.
Advance This is the money you have borrowed plus all the additional fees.
Base Rate In UK, this is the base interest rate set by the Bank of England. In the United States, this value is set by the Federal Reserve and is known as the Discount Rate.
Bridging Loan This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property.
Conveyance This is the legal document that transfers ownership of unregistered land.
Disbursements These are all the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.
Early Redemption Charge / Pre-Payment Penalty / Redemption Penalty This is the amount of money due if the mortgage is paid in full before the time finished.
Equity This is the market value of the property minus all loans outstanding on it.
First time buyer This is the term given to a person buying property for the first time.
Freehold This means the ownership of a property and the land.
Land Registration This is a legal document that records the ownership of a property and land. This is also known as a Title.
Leasehold This means the ownership of the property and land for a specified period, which may be sold separately from freehold, which may be owned by another person.
Legal Charge This is a legal document that records the data of the rightful owner of a property or land.
Loan Origination Fee A charge levied by a creditor for underwriting a loan. The fee often is expressed in points. A point is 1 percent of the loan amount.
Mortgage Deed This is a legal document that stated that the lender has a legal charge over the property.
Mortgage Payment Protection Insurance This is a form of insurance that ensures that the current mortgage payment will be paid if the borrower provs unable to do so.
Private Mortgage Insurance This is a form of insurance the lender has the borrower take for loans over 80% of the appraised value. This will pay the lender only the owed portion up to 80% on a defaulted loan.
Sealing Fee This is a fee made when the lender releases the legal charge over the property.
Subject To Contract This is an agreement between seller and buyer before the actual contract is made.
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