Property is a huge asset and can be a source of income. It can also be a source to procure a loan, called a Mortgage loan or debt. A mortgage debt is a transfer of the deeds of a property to a lender, as a security against the loan he provides the borrower. The ownership of the property is not attained by the lender, but he does have an interest in the property, which needs to be fulfilled before the property can change hands. In case on non payment of the loan, the lender becomes the owner of the property, and can utilize it to retrieve the loan amount.
The mortgage travels with the land, even while it changes hands. The new owners of the land have to make the balance loan payments, failing which the lender reserves the right to take possession of the land as repayment of the loan.
A mortgage debt is struck between financial organizations which provide funds with acquiring the security of real estate, and individual house-owners, businessmen or investors- presumably buying the same real estate. Both parties require solicitors or attorneys to look into the mortgage deal, as the debt has legal consequences.
The various facets of a typical mortgage loan is
• Term of the loan: Time period of the loan, through which the amount needs to be paid, is usually maximum. Some mortgages, however demand that full balance amount be paid after a certain time.
• Payment amount and frequency of payment: This depends from mortgage to mortgage and can keep changing. Also, the borrower may have the liberty to pay in flexible amounts per cycle. Some mortgages also allow pre payments which give flexibility to the borrower, who can pay every cycle according to the availability of funds
• Interest of the loan: It may fixed or floating. It may remain unchanged for a period of time and then increase or decrease.
While getting a mortgage ensures the owner of the property that the whole amount of such an expensive asset need not come out of his pocket all at once, it is a norm that some portion of the property’s worth is paid by him as down-payment. This establishes a Loan to value ratio for the lender. This is the ratio which determines the risk of the loan. Higher this ratio more is the risk of the value of the property not sufficing to pay out the loan amount.
The value of the property on which the mortgage is taken out is also an important factor in understanding the risks involved for the lender. The simplest way is to take the actual cost of the property, at the time of purchase. Since a lot of mortgages are taken out at the time of purchase of the property, this is a fairly straightforward way of ensuring that the right value has been taken into account. In other mortgages, where the loan was given after the property was bought, assessments from professionals are permissible. Some banks may have their own set of professionals to assess the value of the property.
Mortgage loans have become an easy way to procure your dream home and a roaring business for financial organizations providing such loans.