subject: Mortgages: Key Facts [print this page] A mortgage is such a common term in our society that many people never stop to consider precisely what it means. For most even people with a mortgage themselves the term simply means a loan taken out in order to buy a property.
However, a mortgage differs from other kinds of loan specifically because it has one major use and because under a mortgage contract the interest in a property is transferred to the lender as security for the cash sum being advanced. Therefore the mortgage contract itself is not the actual debt but rather the reassurance that the debt will be repaid. The contract also stipulates that once the terms of the debt have been repaid, then the interest in the property will revert to the borrower.
The word mortgage itself derives from Old French, literally meaning a dead pledge. This is taken to mean that the end of the pledge comes or dies when either the loan is repaid in full or the property undergoes foreclosure and reverts to the ownership of the lender.
Mortgage lenders are usually specialist investors who make available cash for purchasing property. Their primary profit stems from the interest rates attached to the home loan, but also in some cases from the ultimate sale of the property if the mortgage-holder defaults on the loan.
A borrower is legally required to meet the terms and conditions of the loan or risk foreclosure the takeover and sale of their property. Such high stakes usually require one or both parties to carry out the deal via legal representation, known in the UK as conveyancing. Furthermore, there are so many mortgages available that the services of an advisor are usually sought before a loan is applied for.
As few individuals have the amount of ready cash necessary to buy a property outright, a mortgage has become the ubiquitous form of loan underpinning most of the worlds property markets. It is the only way that most people can realistically hope to eventually own their own house or commercial premises.
This has also made the mortgage sector so massive that many economies are underpinned by borrowing to pay for properties. Many analysts believe that the credit crunch which led to the current global economic downturn began in the US when lenders gave mortgages to borrowers who were not actually in the position to repay the loans, with serious knock-on effects on the wider world economy that we are still feeling today.
Mortgages: Key Facts
By: Kim Chambers
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