Mortgage

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A mortgage is a loan secured by a piece of real property. Typically, a mortgage is used to finance the purchase of the property used as security.

As the vast majority of house buyers are unable to pay for the price of the house in full, lending arrangements which allow buyers to finance the purchase of a house have arisen. In a typical mortgage, the buyer puts up a fraction of the purchase price, known as a down payment, while the lender puts up the remainder. The buyer/borrower then makes regular payments to the lender to retire the loan, paying interest on the remaining loan balance. The lender has security on the loan either by means of a lien or a deed of trust on the property. If the borrower defaults on his payments (or other terms of the mortgage), the lender may initiate foreclosure to obtain title to the property.

Typically, mortgage payments are set to allow a series of equal payments to retire the loan over its term. Variations on this practice exist: there are adjustable-rate mortgages, where the interest rate, and thus the amortizing payment, vary with market conditions; there are balloon-payment mortgages, where a significant portion of the balance is due before the payments would have otherwise retired the loan; and there are loans which allow interest-only payments or negative amortization for a portion of the term of the loan.

It is possible for a homeowner to obtain a second mortgage on his property, if the difference between the value of the property and the balance remaining on the first mortgage is sufficient. These loans are sometimes called home equity loans.

Structure of mortgages

Conventional mortgage

Deed of Trust

Terms of mortgages

Fixed-rate

Adjustable-rate

Points

Annual Percentage Rate

Complaints

In the United States, complaints against mortgage companies can be filed with the Federal Trade Commission.

References