In the purest sense, mortgages are methods of using property as security for the performance of an obligation, usually a debt. These home loans allow individuals and businesses to purchase homes and properties without having to pay for them with cash.
These home loans involve the transfer of an interest in land as security for a loan or other obligation. In the United States, mortgages are the most common method of financing real estate transactions.
Usually, in the United States, home loans are paid in installments. The most popular installment length is thirty years. Installment payments on home loans are a combination of the interest and a payment on the principal.
The party transferring the interest in the land is known as the mortgagor; in other words, the borrower in an agreement.
The mortgagee, usually a financial institution, is the provider of the loan. Generally, they have the right to transfer their interest in the home loan.
Foreclosure occurs in mortgages when payments are not made. It allows the mortgagee to declare the entire home loan debt due, and demand it be paid immediately, in full. This is accomplished through an acceleration clause in the home loan agreement. Failure to pay the debt, once foreclosure occurs, leads to the seizure of the property by the mortgagee. The foreclosure process varies from state to state. It also depends on the terms of the mortgage.
Second mortgages are home loans that are subordinate to another loan against the same property. This means that if loans go into default, the first home loan gets paid off first, before the second home loans. In the real estate world, a property can have a number of different loans or liens against it.
Because second mortgages are riskier, financial organizations charge a higher interest rate for them. The term "home equity loan" is used synonymously with second mortgages in the United States.
Surprisingly, it is possible to take out third home loans. Since third home loans are more of a risk than first and second home loans, the interest rates are higher. Because of this, people usually refinance their first and or second mortgages rather than take out a third.
In the United States, two different types of mortgage instruments are used: the mortgage deed and the deed of trust .The deed of trust is a deed by the borrower to a trustee for the purpose of securing a debt. The term "mortgage deed" is used interchangeably with the term mortgage.