What Is A Mortgage?
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Before you go in to talk with a mortgage lender, you should become acquainted with what a mortgage is, what's available and how the system works. First, a mortgage is a legal instrument that secures a debt on real property. An individual who borrows money to buy property, the mortgagor, executes a mortgage and gives it to the lender, the mortgagee. (A mortgage consists of two parts: The mortgage document that secures the debt; and the note, which is evidence of the debt itself.

Borrower Rights

In most states, the borrower has both possession and title to the property (except in the event of foreclosure by the lender). Some states (CA, HA, VA, MD) and the District of Columbia, use a type of mortgage called a deed of trust. With a deed of trust, title to the property resides with a third-party trustee, who may or may not be affiliated with the lender. Borrowers have possession of the property but receive title only when they have met the obligation and fulfilled all the conditions outlined in the deed. Borrowers lose possession in the event of foreclosure.

Lender Rights

If a borrower defaults on a debt, the lender may foreclose on the property. With a standard mortgage, foreclosure is a judicial sale over which an officer of the court, usually a sheriff, presides. A deed of trust empowers the trustee to hold a private foreclosure sale in the event of a borrower's default.

The purpose of both methods of foreclosure is to satisfy the outstanding debt to the lender by selling the property. If the foreclosure sale brings in an amount greater than that of the debt owed, the surplus goes to the borrower.

The effect of foreclosure is to wipe out all interests in the property created after the execution of the foreclosed mortgage.

Paying Your Mortgage Off

There are many different types of mortgages, each with its own specific repayment formula. Basically, a mortgage is taken out for a certain number of years at a fixed or variable interest rate. The term for a mortgage is generally 15 or 30 years with lenders advancing funds based on a loan to-value ratio (LTV). The amount of the loan is divided by the property value (the lesser of the sales price or the loan is divided by the property value (the lesser of the sales price or the appraised value) and expressed as a percentage. This percentage is the LTV ratio. Usually, the outstanding mortgage loan is amortized, which means that the borrower remits a monthly payment of both principal and interest on the loan. Collection and accounting of these payments is called servicing the loan. Servicing a loan also may include paying insurance bills and local property taxes with funds pledged by a borrower and deposited in an escrow account.

There are many types of mortgages on today's market. Shop and choose the mortgage with the terms and payment plan that best suits your needs.

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