3/28/2017

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Mortgage

Mortgage: The basic definition of a mortgage is a written contract between a lender and a borrower in which a lien is placed on a home or other real property as security for a loan. The borrower qualifies for the loan to purchase property and agrees to repay the loan. The lender uses the property as security by issuing a note and deed of trust against it.

"Mortgagor" is the legal term used for a borrower who obtains a loan to purchase real estate using the property as a pledge for security.

"Mortgagee" is the legal term used for an individual or company which makes a loan and uses a borrowers property as security in exchange for financing.

Both parties benefit from this legal and binding contract.

The Borrower (Mortgagor):

  • The borrower acquires title to the property and has what is called, "quiet enjoyment." This means that the borrower has the rights of usage, as long as the property is used and maintained under state and local use codes and zoning regulations.
  • The borrower can live in the property, if it is a home or apartment building.
  • If it is a farm or ranch, the borrower can work it and reap the benefits of his or her labor.
  • The borrower has the right to rent or lease the property and keep an profit over the amount needed to pay the monthly mortgage note and other expenses.
  • The borrower can use the property as a tax advantage when filing income tax returns by claiming depreciation, mortgage interest deductions, and other tax related benefits.
  • Equity build-up is another important reason to buy property. Over the years, most properties appreciate in value while the mortgage balance is paid down, in which case the borrower makes a profit from equity build-up.

The Lender (Mortgagee):

  • The mortgage gives the lender a security interest in the property, although the borrower retains possession and the right of use.
  • The lender makes a profit by charging interest for the use of the money.
  • The lender also makes a profit by charging an origination fee, processing fee, points, and other loan related fees.
  • The lender may sell the loan in the secondary mortgage market and make a profit from the sale.
  • The lender maintains the right to initiate foreclosure preceedings on the property if the borrower defaults on the debt.

The lender expects the loan to be repaid and expects the payments to be made when they are due.

It is up to the lender to do everything possible to protect his investment. That is why there is an loan application and underwriting process in which a borrowers credit history, assets, employment history, and other financial obligations are thoroughly examined.

The lender looks at the value of the property on which the mortgage is to be placed, making sure that the value of the property is appraised correctly, in case the lender has to foreclose and take possession of the property if the borrower defaults on the loan.

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