The loan is " secured " on the borrower's property through a process known as mortgage origination. 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 to abide by its terms.
The word mortgage is derived from a " Law French " term used by English lawyers in the Middle Ages meaning "death pledge" refers to the pledge ending dying when either the obligation is fulfilled or the property is taken through
Consolidating assets definition mortgage. 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.
The lender will typically be a financial institution, such as a bankcredit union or building societydepending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries. 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's rights over the secured property take priority over the borrower's other creditorswhich that if the borrower becomes bankrupt or insolventthe other Consolidating assets definition mortgage 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.
In many jurisdictions, it is normal for home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquid funds to enable them
Consolidating assets definition mortgage purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets for mortgages have developed.
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 Consolidating assets definition mortgage fungible bonds that Consolidating assets definition mortgage be sold to investors
Consolidating assets definition mortgage small denominations.
According to Anglo-American property lawa mortgage occurs when an owner usually of a fee simple interest in realty his or her interest right to the property as security or collateral for a loan.
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.
As with other types of loans, mortgages have an interest rate and are scheduled to amortize over a set period of time, typically 30 years. All types of real property can be, and usually are, secured with Consolidating assets definition mortgage mortgage and bear an interest rate that is supposed to reflect the lender's risk.
Mortgage lending is the primary mechanism used in Consolidating assets definition mortgage countries to finance private ownership of residential and commercial property see commercial mortgages. Although the terminology and precise forms will differ from country to country, the basic components tend to be similar:. Many other specific characteristics are common to many markets, but the above are the essential features.
Governments usually regulate many aspects Consolidating assets definition mortgage mortgage lending, either directly legal requirements, for example or indirectly through regulation of the participants or the financial markets, such as Consolidating assets definition mortgage banking industryand often through state intervention direct lending by the government, direct lending by state-owned banks, or sponsorship of various entities.
Other aspects that define a specific mortgage market may be regional, historical, or driven by specific characteristics of the legal or financial system. Mortgage loans are Consolidating assets definition mortgage structured as long-term loans, the periodic payments for which are similar to an and calculated according to the time value of money formulae. The most basic arrangement would require fixed monthly payment over a period of ten to thirty years, depending on local conditions.
Over this period the principal component of the loan the original loan would be slowly paid down through amortization. In practice, many variants are possible and common worldwide and within each country.
Lenders provide funds against property to earn interest incomeand generally borrow these Consolidating assets definition mortgage themselves for example, by taking deposits or issuing bonds. The price at which the lenders borrow money therefore affects the cost of borrowing. Lenders may also, Consolidating assets definition mortgage many countries, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower, often in the form of a security by means of
Consolidating assets definition mortgage securitization.
Mortgage lending will also take into account the perceived Consolidating assets definition mortgage of the mortgage loan, that is, the likelihood that the funds will be repaid usually considered a function of the creditworthiness of
Consolidating assets definition mortgage borrower ; that if they are not repaid, the lender will be able to foreclose on the real estate assets; and the financial, interest rate risk and time delays that may be Consolidating assets definition mortgage in certain circumstances.
Once the mortgage application enters into the final steps, the loan Consolidating assets definition mortgage is moved a Mortgage Underwriter. The Underwriter verifies the financial information that the applicant has provided to the lender. The financial and employment information of Consolidating assets definition mortgage applicant will also be verified.
The underwriting may take a few days to a few weeks. Sometimes the underwriting process takes long that the provided financial statements need to Consolidating assets definition mortgage resubmitted so they are current. Consolidating assets definition mortgage are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage. All of these may be subject to local regulation and legal requirements.
The two basic types of amortized loans are the fixed Consolidating assets definition mortgage mortgage FRM and adjustable-rate mortgage ARM also known as a floating rate or variable rate mortgage. In some countries, such as the United States, fixed rate mortgages are the norm, but floating rate mortgages are relatively common.
Combinations of fixed and floating Consolidating assets definition mortgage mortgages are also common, whereby a mortgage loan will have Consolidating assets definition mortgage fixed rate for some period, for example the first five years, and vary after the end of that period.
The charge to the borrower depends upon the credit risk in addition to the interest rate risk. The mortgage origination and underwriting process involves checking credit scores, debt-to-income, downpayments, assets, and assessing property value. Jumbo mortgages and subprime lending are not supported by government guarantees and face higher interest rates.
Other innovations described below can affect the rates Consolidating assets definition mortgage well. Upon making a mortgage loan for the purchase of a property, lenders usually require that the borrower make a down payment; that is, contribute a
Consolidating assets definition mortgage of the cost of the property.
This down payment may be expressed as a portion of the value of the property see below for a definition of this term. The loan to value ratio or LTV is the size of the loan against the value of the property. For loans made Consolidating assets definition mortgage properties that the borrower already owns, the loan to value ratio will
Consolidating assets definition mortgage imputed against the estimated value of the property.
The loan to value ratio is considered an important indicator of the riskiness of a mortgage loan: Since the value of the property is an important factor in understanding the risk of the loan, determining the value is a key factor in mortgage lending.
The value may be determined in various ways, but the most common are:. In most countries, a number of more or less standard measures of creditworthiness may be used.
Common measures include payment to income mortgage payments as a percentage Consolidating assets definition mortgage gross or net income ; debt to income all debt payments, including mortgage payments, as a percentage of income ; and various net worth measures.
In many countries, credit scores are used in lieu of or to supplement these measures. There
Consolidating assets definition mortgage also be requirements for documentation of the
Consolidating assets definition mortgage, such as income tax returns, pay stubs, etc.
Some lenders may also require a potential borrower have one or more months of "reserve assets" available. In other words, the borrower may be required to show the availability of enough assets to pay for the housing costs including mortgage, taxes, etc. Many countries have a notion of standard or conforming mortgages that define a perceived acceptable level of risk, which may be formal or informal, and may be Consolidating assets definition mortgage by laws, government intervention, or market practice.
A standard or conforming mortgage is a key concept as it often defines whether or not the mortgage can be easily Consolidating assets definition mortgage or securitized, or, if may affect the price at which it may be sold. In Consolidating assets definition mortgage United States, a conforming mortgage is one which meets the established rules and procedures of the two major government-sponsored entities in the housing finance market including some legal requirements.
In contrast, lenders who decide to make nonconforming loans are exercising a higher risk tolerance and do Consolidating assets definition mortgage knowing that they face more in reselling loan.
countries have similar concepts or agencies that define what are "standard" mortgages. Regulated lenders such as banks may be subject to limits or higher-risk weightings for non-standard mortgages.
In some countries with currencies that tend to depreciate, foreign
Consolidating assets definition mortgage mortgages are common, enabling lenders to lend in a stable
Consolidating assets definition mortgage currency, whilst the borrower takes on the currency risk that the currency will depreciate and they will therefore need to convert higher amounts of the domestic currency to repay the loan.
In addition to the two standard means of setting the cost of a mortgage loan
Consolidating assets definition mortgage at a interest rate for term, or variable relative to market interest ratesthere are variations in how that cost is paid, and how the loan itself is repaid.
Repayment depends on locality, tax laws and prevailing culture. There are also various mortgage repayment structures to suit different types of borrower. The most common
Consolidating assets definition mortgage to repay a secured mortgage loan Consolidating assets definition mortgage to make regular Consolidating assets definition mortgage toward Consolidating assets definition mortgage principal and interest over a set term.
A mortgage is a form of annuity from the perspective of the lenderand the calculation of the periodic payments is based on the time value of money formulas.
Certain details may be specific to different locations: There may be legal restrictions on certain matters, and consumer protection laws may specify or prohibit certain practices. Depending on the size of the loan and the
Consolidating assets definition mortgage practice in the country the term may be short 10 years or long 50 years plus.
In the UK and U. Mortgage payments, which are typically made monthly, contain a repayment of the principal and an interest element. The amount going toward the principal in each payment varies throughout the term of Consolidating assets definition mortgage mortgage. In the early years the repayments are mostly interest. Towards the end of the mortgage, payments are mostly for principal. In this way the payment amount determined
Consolidating assets definition mortgage outset is calculated to ensure the loan is repaid at a specified date in the future.
This gives borrowers assurance by maintaining repayment the loan will be cleared at a specified date, if the interest rate does not Consolidating assets definition mortgage. Some lenders and 3rd parties offer a bi-weekly mortgage payment program designed to accelerate the payoff of the loan.
An amortization schedule is typically worked out taking the principal left at the end of each month, multiplying by the monthly rate and then subtracting the monthly payment. This is typically generated by an amortization calculator using the following formula:. The main to a principal and interest mortgage is an interest-only mortgagewhere the principal is not repaid throughout the term.
This type of mortgage is common in the UK, especially when associated with a regular investment plan.
With this arrangement regular contributions are made to a separate investment plan designed to build up a lump sum to repay the mortgage at maturity. This type of arrangement is called an investment-backed mortgage or is often related to the type of plan used: Historically, investment-backed
Consolidating assets definition mortgage offered various tax advantages over repayment mortgages, although this is no longer the case in the UK.
Investment-backed mortgages are seen as higher risk as they are dependent on the investment making sufficient return to clear the debt. Until recently [ when? Recent Financial Services Authority guidelines to UK Consolidating assets definition mortgage regarding interest-only
Consolidating assets definition mortgage has tightened the criteria on new Consolidating assets definition mortgage on an interest-only basis.
The problem for many people has been the fact that no repayment vehicle been implemented, or the vehicle itself e. As such the likes of Nationwide and other lenders have pulled out of the interest-only market. A resurgence in Consolidating assets definition mortgage equity release market has been the introduction of interest-only lifetime mortgages.
Where an interest-only mortgage has a fixed term, an interest-only lifetime mortgage will continue for the rest of the mortgagors life. These schemes have proved of interest to people who do like the roll-up effect compounding of interest on traditional equity release schemes.
They have also proved beneficial to people who had an interest-only mortgage with no repayment vehicle and now need to settle the loan. These people can now effectively remortgage onto an interest-only lifetime mortgage to maintain continuity. They work by having the options of paying the interest on a monthly basis. By paying off the interest
Consolidating assets definition mortgage the balance will remain level for the rest of their life.
This market is set to increase as more retirees require finance in retirement. For older Consolidating assets definition mortgage typically in retirementit may be possible
Consolidating assets definition mortgage arrange a mortgage where neither the principal nor interest is repaid.