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All types of real property can be, and usually are, secured with a mortgage and bear an interest rate that is supposed to reflect the lender's risk.
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Therefore, a mortgage is an encumbrance (limitation) on the right to the property just as an easement would be, but because most mortgages occur as a condition for new loan money, the word mortgage has become the generic term for a loan secured by such real property.Īs with other types of loans, mortgages have an interest rate and are scheduled to amortize over a set period of time, typically 30 years. Mortgage loan basics Basic concepts and legal regulationĪccording to Anglo-American property law, a mortgage occurs when an owner (usually of a fee simple interest in realty) pledges his or her interest (right to the property) as security or collateral for a loan. 5.1 General, or related to more than one nation.2.7 Foreclosure and non-recourse lending.1.3.2 Value: appraised, estimated, and actual.1.1 Basic concepts and legal regulation.Mortgages can either be funded through the banking sector (that is, through short-term deposits) or through the capital markets through a process called "securitization", which converts pools of mortgages into fungible bonds that can be sold to investors in small denominations. In countries where the demand for home ownership is highest, strong domestic markets for mortgages have developed. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In many jurisdictions, it is normal for home purchases to be funded by a mortgage loan.
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The lender's rights over the secured property take priority over the borrower's other creditors, which means that if the borrower becomes bankrupt or insolvent, the other creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. The lender will typically be a financial institution, such as a bank, credit union or building society, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries. Mortgage borrowers can be individuals mortgaging their home or they can be businesses mortgaging commercial property (for example, their own business premises, residential property let to tenants, or an investment portfolio). A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".
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The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property (" foreclosure" or " repossession") to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The loan is " secured" on the borrower's property through a process known as mortgage origination. A mortgage loan or simply mortgage ( / ˈ m ɔːr ɡ ɪ dʒ/), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged.
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