Sunday, November 27, 2005

What is a mortgage ?

A mortgage is method of using property as security for the payment of a debt.

Technically the term mortgage (from Law French, lit. "dead pledge") refers to the legal device used in securing the property, but it is also commonly used to refer to the debt secured by the mortgage.

In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) and in some cases only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals or businesses can purchase residential or commercial real estate without the need to pay the full value immediately.

In many countries it is normal for home purchase to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed; notably in Great Britain, Spain & USA.

The creditor & the debitor

* The creditor - variously referred to as the mortgagee or lender.

They have legal rights to the debt secured by the mortgage and often make a loan to the debtor of the purchase money for the property. Typically creditors are banks, insurers or other financial institutions who make loans available for the purpose of real estate purchase.

* The debtor(s) - variously referred to as the mortgagor(s) or borrower(s).

They must meet the requirements of the mortgage conditions (and often the loan conditions) imposed by the creditor in order to avoid the creditor enacting provisions of the mortgage to recover the debt. Typically the debtors will be the individual home-owners, landlords or businesses who are purchasing their property by way of a loan.

Other Participants

Due to the complicated legal exchange (conveyance) of the property one or both or the main participants are likely to require legal representation. The terminology varies with legal jurisdiction, see: lawyer, solicitor and conveyancer.

Due to the complex nature of many markets the debtor may approach a mortgage broker or financial adviser to help them source an appropriate creditor typically by finding the most competitive loan.

The debt is sometimes referred to as the hypothecation.