What Is a Mortgage?
Mortgage is a type of debt used to purchase real estate. The property serves as security for the debt, which is typically paid in regular installments over a period of years, known as amortization. Mortgages may be secured by a single property or multiple properties. The borrower can be the sole borrower or he or she can apply for a mortgage with a co-borrower, who does not have any ownership rights in the property. In order to qualify for a mortgage, the borrower must usually have sufficient income and assets to meet all debt payments, as well as a good credit history. A lender may also require a down payment to be made at the time of closing.
Mortgage loans allow people who might not otherwise be able to afford a house to become homeowners. They are commonly used to finance residential real estate purchases, but can be used to finance other types of property as well. Mortgages can be obtained through a variety of sources, including banks, credit unions, and specialized mortgage lenders. The loan application process is generally very rigorous and requires the borrower to undergo a thorough underwriting review. The risk associated with the loan varies from lender to lender, and is based primarily on the borrower’s creditworthiness and the amount of his or her down payment.
Unlike other debt instruments, the lender’s right to repossess or foreclose on the property is one of the central aspects that distinguishes mortgages from most other loans. The lender is given a legal charge or lien on the real property that serves as collateral for the debt. A number of different legal theories exist regarding the nature of mortgages, and their operation varies between jurisdictions. For example, in Georgia, the legal code specifies that “A mortgage passes no title and merely secures a debt”.
In most cases, the mortgage lender is required to run a title search of the property before granting a home loan, to ensure that there are no other liens on the property that have priority over the mortgage. These liens can include tax liens, which must be paid before the mortgage lender is entitled to foreclose or repossess the property. In addition, some states have laws that specifically prohibit second mortgages on homes.
Borrowers can pay their mortgages through regular monthly payments that cover both principal and interest. These payments are often collected by the lender and held in escrow, as are real estate taxes.
In many countries, mortgages are heavily regulated either by law or by the financial markets, through the process of securitization. Some of these regulations are designed to protect borrowers, while others serve the purpose of stabilizing the mortgage market and increasing the availability of mortgage credit by making it more affordable for borrowers. In any event, the availability of mortgages is necessary for housing and other real estate to become economically viable, as few individuals have enough cash on hand to purchase property outright.