Mortgage finance has become a necessity for buying home, office or any other real-estate property. Don’t be confused about the mortgage finance process or the terminologies used by the lender or the finance broker. Read this and understand every aspect of mortgage finance.
In simple terms, mortgage financing is the process of providing finance to individuals and business entities, to secure properties, and the finance is repaid through timely and consecutive monthly instalments.
To understand the mortgage finance process, you must first try and understand the basic idea behind mortgages.
Mortgage – Definition
It is a legal agreement that conveys the conditional right of ownership of an asset or property by its owner (the mortgagor) to a lender (the mortgagee) as security for a loan with the condition that the conveyance of the title becomes void upon the repayment of the debt.
Are Mortgages Legally Enforceable?
Yes, they are. In order to be legally enforceable, the mortgage must be for a defined period, and the mortgagor must have the right of redemption on payment of the debt or on before the end of that term.
Why is Mortgage Finance Common?
Here is a list of why it is the most common type of debt instruments:
>> They have a lower rate of interest (because the loan is secured);
>> They are straight forward and have standard procedures; and
>> They have a reasonably long repayment period.
What is a Security Document?
The document by which the agreement is effected is called a “Mortgage Bill of Sale” or simply just a “mortgage.”
What are the Common Mortgage Finance Types?
Real Estate Mortgage – Virtually any legally owned property can be mortgaged, although real property (land and buildings) are the most common.
Chattel Mortgage – When personal property (appliances, cars, jewellery, etc.) is mortgaged, it is called a chattel mortgage.
Second Mortgage – There are situations where it is possible to obtain finance when there is already an existing mortgage associated with the property. It is not unusual for real estate laws to require that the holder of the first mortgage agree to the creation of a second mortgage.
Who has the Right of Possession?
For real property, vehicles, and equipment, etc., the right of possession and use of the mortgaged item normally remains with the mortgagor. But, the mortgagee has the right to take possession at any time to protect his/her security interest.
What Happens in the Event of a Default?
In the event of a default, the mortgagee can:
>> Appoint a receiver to manage the property (if it is a business property), or
>> Obtain a foreclosure for a court to take possession and sell the property.
Glossary of Common Terms Used
>> Mortgagor – the borrower of funds
>> Mortgagee – the lender/credit provider of funds (e.g. a bank or credit union, etc.)
>> First Mortgage – a mortgage that has priority over all mortgages and liens except those imposed by law
>> Second Mortgage – a mortgage that is subordinate to a first mortgage