Why it called a mortgage?
A mortgage is a loan made on a home or other property. The interest on a mortgage is generally paid by the borrower every month until the property is sold. In addition, a mortgage loan may have discount points attached to it. It also has the potential for foreclosure or repossession.
Origins of the term
The origins of the mortgage can be traced back to medieval England, and a bit of scholarly research reveals that the concept has been around since the time of kings. However, there are more modern day applications of this old-school talisman. In a nutshell, a mortgage is a legal agreement between two parties whereby the latter entrusts the former with a piece of property. This may be accomplished by offering a high interest rate on the loan, or simply acquiring the title to the property in exchange for a promise of future repayment. Although not as widely accepted today as it was in the past, a mortgage is still a popular method of financing a home purchase. With the rising cost of living, more and more homeowners are relying on this type of loan to make the down payment on their dream home.
Mortgages have their perks, like the ability to deduct a percentage of the loan from your tax bill, and the ability to get a mortgage rate that is more in line with your credit score. Some lenders even offer a free home appraisal, and other incentives to make you want to take out a loan.
Structure of a mortgage loan
The structure of a mortgage loan can make a difference in how much you pay each month. It is important to know the different types of mortgage loans available so that you can decide which one is best for you.
When a borrower agrees to a mortgage, he or she is agreeing to a commitment to repay the loan over a period of time. This contract can be modified or extended. In the case of a modification, the lender may change the terms of the loan.
Mortgages are loans that give the borrower the right to use real estate as collateral. A borrower can use the money from a mortgage to buy a house, to renovate the property or to build on it.
Many of these loans are designed to help people budget. They are also designed to provide consistency in payments over the course of the loan.
Usually, a mortgage has a fixed rate of interest. The interest is the cost of borrowing money from the lender. However, this can vary based on several factors.
If a borrower fails to make payments on a mortgage, the lender has the right to repossess the property. Depending on the type of loan, the homeowner may be required to pay insurance or taxes on the property.
When a home is purchased, the prospective buyer makes a down payment. The down payment represents a percentage of the value of the property. Typically, the down payment is a minimum of 20 percent.
Once the loan is approved, the borrower begins to make monthly payments. These payments are a combination of interest, principal and insurance. Generally, the insurance payments are held in an escrow account.
Foreclosure and repossession
Foreclosure and repossession are two different processes, although they share a number of similarities. In both instances, the lender takes possession of the property of the borrower in order to recoup the loan.
Depending on state laws, there are a variety of methods by which the lender can accomplish this. The process is usually lengthy and involves many steps. It can result in eviction from the home.
When a borrower misses mortgage payments, the lender can file a lawsuit to get a court order to take possession of the property. In some states, a person who is evicted from his or her home can receive relief from the federal government.
There are several loss mitigation strategies that lenders can use to minimize the impact on the borrower’s credit. Some of these measures include a loan modification, forbearance, and a short sale.
Repossession can also be achieved without the use of a foreclosure. This is often referred to as a self-help method.
It consists of obtaining a court order for possession and then executing a legal eviction. During this process, law enforcement may be called in to remove the occupants.
A similar method is the non-judicial foreclosure. Under certain conditions, a lender can foreclose on the home by simply selling it to a third party. These procedures are less costly and more convenient.
Another type of foreclosure, however, is the judicial foreclosure. This type of foreclosure requires a court order for possession, and the borrower must meet a set of requirements before it can occur.
Aside from the obvious, the most effective way to avert foreclosure is to have a plan. If your situation is dire, a certified credit counselor can help you develop a plan. You can also work to improve your credit score.
Discount points
Discount points in a mortgage are a great way to lower your monthly payments. This is especially true if you plan to stay in your home for a long time.
The actual number of points you will get out of a discount point will vary depending on the lender, but generally, a point translates to a one-eighth to one-quarter of a percent reduction in your interest rate. As a result, the amount you save each month will continue to grow, assuming you do not refinance before your break-even point.
You can calculate the size of the savings by using a mortgage calculator. You can compare up to three different mortgages with different discount points and interest rates. Once you have inputted the details, the calculator will display your estimated total interest expense and monthly payment.
Using the calculator, you can also find out the length of time you will need to repay the loan. This can vary from one month to 71 months.
In terms of comparing the mortgages, the point you are most interested in is the one that has the most money-saving features. While the savings may seem small, they add up quickly.
For example, a half point can cost as little as $1,000 on a $200,000 loan, which is a sizable saving. A more impressive one-eighth of a point can result in a savings of as much as $4,000.
Using a mortgage calculator can show you the savings you can expect from a point. However, it is important to remember that you cannot rely solely on a calculator to determine what you will pay for a mortgage. It is essential that you shop around for the best loan deal.
Secondary mortgage market
The secondary mortgage market is a marketplace where lenders and investors buy and sell mortgage-backed securities. It provides a new source of capital for the mortgage industry. Investing in this market also allows banks to repackage mortgages.
Investors in the secondary market include pension funds, hedge funds, government agencies, insurance companies and institutional investors. These investors purchase mortgage-backed securities for the promise of future returns.
Government-sponsored enterprises (GSEs) have the largest presence in the secondary market. They are the middlemen between borrowers and lenders. By packaging up multiple loans into mortgage-backed securities, GSEs make homeownership more affordable.
While the benefits of the secondary mortgage market are numerous, the system is not perfect. In addition, some of the risks can be serious. For example, if enough borrowers fail to make payments, the secondary market can be destroyed. Fortunately, there are ways to reduce these risks.
Home buyers can choose to work with a direct lender or a mortgage broker. Direct lenders have their own money to loan, while brokers and online mortgage companies have borrowed funding.
If you are considering buying a home, it is important to understand how the secondary mortgage market works. You can speak with a mortgage expert for more information.
The secondary mortgage market plays a critical role in the economy. This market helps homeowners make their homes more affordable by lowering mortgage rates and making longer loan terms possible.
When the financial crisis hit in 2008 and 2009, banks were forced to sell off mortgages. Government-sponsored enterprises, such as Fannie Mae and Freddie Mac, were able to resell the mortgages to other investors.
Borrowers are unable to get approved for a mortgage if their credit score is too low. This can lead to foreclosure, which has a ripple effect on other borrowers.
