What Are Mortgages?

Mortgage loans are loans made by borrowers to purchase real properties. This type of loan allows lender to put a lien on the property being purchased. With this concept, a mortgage is a secured type of loan against the borrower’s real property that has been purchased. The lender is then given the authority to demand claim over the property and sell it to pay off the loan in case the borrower fails to pay. A lender for this instance is usually a financial institution such as a bank or a government financial institution.

Mortgage loans can be made by the directly by a borrower to the financial institution or through an intermediary like the contractor or a broker. Most home purchases are funded by a mortgage loan as few individual have enough liquid cash to purchase a property. In some cases, businessmen prefer to purchase property through a mortgage and placing their liquid cash in other interest bearing investments which may yield a higher amount compared to the interest rates paid off from the mortgage.

Related imageA mortgage loan is paid by regular payments that can be made by the borrower on a monthly, quarterly, semi-annually or annual basis for a specified number of years as agreed with the financial institution granting the loan. These regular payments are called amortizations which include the principal, interest and other mortgage related fees (ie. Late payment fees). An amortization schedule is provided to the borrower which is prepared by the lender. It is based on remaining principal left at the end of each billing cycle, multiplied by the interest rate less previous amortization paid.

In relation to mortgage loans, a mortgage insurance may be put in place which is there to protect the lender from default payment. The mortgage insurance is usually part of the fees paid by the borrower as a component to the amortization paid. In the event where a property is foreclosed due to default payments made by the borrower, the lender may sell of the property to recover the amount that was borrowed. In most cases, the property is sold at a very low price to recover the amount soon as possible where the proceeds of the insurance act as a supplement to the sale of the property.