What Is a Mortgage?
Mortgage is a loan to cover the cost of a home. Most people don’t have enough cash saved to purchase a property outright, so they use a mortgage to finance the difference. In return, they pay interest on the loan.
Mortgage loans are often secured by a lien on real estate, such as land or houses, to protect the lender’s right of ownership if the borrower defaults. The loan may also be backed by other types of collateral, including personal assets like checking or savings accounts. Typically, mortgages are made through a bank or credit union. However, specialized mortgage companies or nonbank lenders can offer mortgages as well.
The mortgage lending industry is regulated in many countries. Borrowers must undergo a rigorous application and underwriting process to ensure that they have sufficient income and assets relative to debt to afford the mortgage payment. In addition, the lender evaluates a person’s credit history and other factors that reflect his or her level of risk. These assessments determine whether or not a mortgage can be approved, the amount that a person is permitted to borrow and the interest rate on the mortgage.
When a person applies for a mortgage, he or she generally provides the lender with a financial statement and other documentation that shows his or her assets, liabilities and income. The mortgage lender uses this information to verify that the applicant can afford the mortgage payments and will be able to repay the loan. The lender also verifies that the applicant is not engaging in any illegal activity.
Once a borrower has been approved for a mortgage, he or she will typically sign the final mortgage documents at a closing. At this time, the buyer will usually make a down payment and pay closing costs to the lender. These fees can vary depending on where the borrower lives, the value of the home and other factors.
While principal, interest and taxes are the main components of a mortgage payment, some mortgages include additional fees like PMI (private mortgage insurance), property management fees, title search fees and other expenses. The lender can also add in other charges if they see fit.
The mortgage loan industry is highly competitive, and borrowers are often contacting multiple lenders as they begin their home search. Lenders who want to capture this opportunity need to be able to identify customers in the pre-approval stage and nurture relationships with them as they move into the shopping and loan application phases. This requires the lender to leverage next-product-to-buy models that identify the most likely borrowers. The lender then can use these tools to reach and engage these borrowers with relevant messages, content and other mortgage offerings. In turn, this improves the likelihood that a borrower will choose them for their mortgage needs. In fact, this has been proven to increase conversion rates by as much as 50%.